27 May 2010
With shareholders at war over the kitchen table, how the spectre of divorce can impact on a family business.
In the UK, an estimated nine million plus employees work in a family owned business, making it the largest single group of employees working in the private sector.
For many, the sense of tradition and pride that comes in working "for the family" is extremely satisfying but when trouble brews, the fallout can be extremely close to home in every sense of the word.
A divorce at the heart of a family business is likely to be devastating on both a personal and practical level. Not only may each party be a director of the company, but very often when a family business has been started, the shares will have been split between a husband and wife as a tax efficient option.
Sue Andrews, partner and family practice group leader at B P Collins says the team is frequently asked if a court is likely to order the sale of a family business. On the basis of not "killing the golden goose", she says this is unlikely, but a restructuring may be necessary in order to release funds to one or other of the parties.
Another issue often raised is where one partner considers he (or she) has made a greater contribution. For example, a husband may claim it has been his entrepreneurial flair and skill which has made the business such a great success, and that his wife's involvement has been minimal or in name only.
However, it is worth noting that some of the largest divorce settlements in the history of the UK courts, have been as a result of cases where one half of the divorcing couple has given up a promising career, usually the wife to care for children, in order to support her husband in the furtherance of his career.
If both parties are directors of the company, then divorce can trigger many areas for dispute. Directors will usually fall into two categories: a director who is effectively a senior employee working for the company in question; or a director who has a controlling or substantial shareholding in the business, often referred to as an equity director.
In the first instance, it is likely that the employee director's remuneration package will be complex, involving benefits in kind, performance-related bonuses and significant pension schemes. Working out the figures to decide how much should be regarded as continuing income for calculating maintenance payments can be a problem area, especially where pensions or bonuses are concerned.
If, in the case of equity directors, the shares have been split between the husband and wife, then the most important step must be establishing the value of the business, a move which can prove difficult.
Generally a valuation will be undertaken by an expert jointly instructed by both spouses, ensuring that the questions asked and basis of the valuation are agreed beforehand, as is the choice of valuer.
Likely points of contention can be whether the value of the company depends on a particular individual, whether a particular shareholding has a value, and ownership of the business assets, such as the property.
It's a very important calculation to get right. One wife turned to the Court of Appeal after her former husband, the managing director of a privately-held timber company had estimated the value of his shares in the business at £216,000.
When the company was sold a few months later, he received £1.8 million and she sought to increase the amount due to her, claiming that he failed to disclose the true value of his stake in the business. The Court however, decided against her, emphasising that there had never been any consensus about the value of the shares.
Sue concludes: "This example shows that divorce is seldom straightforward, particularly where there are assets in the family worth arguing about. It is definitely an area where the old adage that 'you get what you negotiate, not what you deserve' is often true and underlines the importance of seeking objective expert advice early on."
To speak confidentially with one of our matrimonial lawyers please call 01753 279045, complete the online enquiry form or email us directly at familylaw@bpcollins.co.uk. |
