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What becomes of the family business on divorce?

July 10, 2013 Speech Box

I am often involved in cases in which the business is the largest asset in the case and yet there may be insufficient liquidity in the case generally and within the business itself to be able to effect an immediate clean break on divorce.

Even where there is sufficient liquidity, the spouse owning the business might feel that a clean break solution involving a payment from him to her of an equal lump sum in return for him keeping the business would not be a fair sharing of the risk.  These kinds of cases require a bespoke solution carefully crafted depending on the facts of the case.

Some of the important questions that we have to deal with are the following:-

  1. Should there be an order for payment of a lump sum over time to effect a delayed clean break?
  2. If there is to be a lump sum payment should a discount be applied to the value of the business to reflect possible future risk?
  3. If a lump sum payment is to be made over time, should it be variable?  Should the person who has to pay it provide some form of security?
  4. Should there be interest payable and if so at what rate?
  5. Should there be a transfer of shares in the business from one spouse to the other?
  6. Would a suitable alternative be a lump sum order in the event of the future sale of the business?

Each of these possible solutions carries possible advantages and disadvantages.

If I am acting for the spouse who is not involved in the business, but may be seeking a transfer of some shares, as a first step I would obtain a copy of the Articles and any Shareholder Agreement at an early stage and try to ascertain from other directors, and if necessary, the company to find out what their thoughts would be about a possible transfer of shares to my client.  Matters such as these can involve some complex issues but solicitors need to try and find a practical solution.

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