In business with your soon-to-be-ex? How to protect your biggest asset
By Norman Taylor, Collaborative Family Lawyer
Should boardroom squabbles ever make their way into the bedroom? Not if the recent spate of high profile co-business divorce cases is anything to go by. The well documented cases of oil trader Michael Prest and his wife Yasmin, Ford boss David Thursfield and his wife Linda, Scot and Michelle Young and billionaire philanthropist Sir Christopher Hohn and his former wife Jamie Cooper-Hohn have firmly turned the spotlight on the issue of marital discord and corporate asset division.
In all of these cases, problems have arisen as a result of one party believing that the other party has inaccurately declared their assets. In the UK, divorcing couples are required to complete a Form E, which is the financial statement that details their assets, liabilities, living costs and income. It is the primary document that the courts use to decide the financial division of assets.
However, whilst Form E arguably has many plus points in its favour – indeed, many believe it to be the best method to date that the legal system has implemented regarding full financial disclosure – one of the major drawbacks is that it only requires the previous 12 months of information to be declared.
This means that some ‘forward thinking’ spouses who are planning to divorce their husband or wife, may begin to divert assets long before they officially call time on their relationship. As a result, these assets may not then be taken into consideration when settlements are being made, unless the court can be persuaded to allow much more extensive enquiries to be made.
As with all divorces, the dividing of assets plays a key role, but when a couple are in business together, or one of them has their own company, the issues become even more complicated. The business will be seen as an asset, which means that it’s value will be taken into consideration when the couples’ assets are being divided up. If there is found to be a surplus of resources once financial needs have been met, then further thought will be given as to how this will be distributed.
When deciding whether the assets can fairly be divided in a way that allows for a clean break between the parties, the value of the business, and any cash that might reasonably be extracted from it, will be amongst the factors taken into account. This means that neither spouse can make any further financial claims on the other once they are divorced. Alternatively, if there is insufficient capital available to fund this, it may be that the income produced by the business will continue to fund maintenance payments from one spouse to the other.
At Jones Myers, we have a number of clients involved in such situations and we always recommend that those clients who aren’t yet married, but who are in business together, draw up a pre-nuptial agreement.
A pre-nuptial contract has a provision that allows assets such as a business – which can have been acquired, started up or inherited – to be included within the agreement. This means that the parties can agree how the business should feature in the financial issues to be resolved upon a future separation or divorce. However, the agreement must be drawn up with consent of each party, who each have the benefit of legal advice, full mutual disclosure, and a reasonable time prior to the proposed marriage – otherwise the court may well discount it.
Ultimately, nobody wants to kill the ‘golden goose’ and destroy a family’s main source of income, so the end result has to be fair to both parties, with the interests of children taking a priority.
Do you think Form E should be reviewed? Should there be a time restriction on the listing of assets? Would you consider signing a pre-nuptial agreement?
If you have any questions or concerns about your divorce and are worried about how your assets should be divided, please call us on 0113 246 0055, leave us a comment below or drop us an e-mail.