For many, when they first get married, their business may just be a fledgling doing little more than ‘washing its face’ and ‘keeping its head above water’. However, fast forward 20 years and all the hard work and time turns a business, which has grown, into something valuable and saleable. The last thing you might want is to find it is treated as a matrimonial asset on divorce, which it would be if not protected.
It is possible to put measures in place which will work to protect your business, though this does depend on what type of business it is. We set out below a guide which may assist with all types of business. These are as follows:
- Transfer the intellectual property (IP) rights into the company. IP can be one of the business’s most valuable assets. If it is jointly owned one spouse will need to buy out the other if they want to keep it following the divorce. If it is owned by the company then it is easier to deal with (it is valued as part of the company) and may not be treated as entirely matrimonial for purposes of division.
- Draw up a shareholders’ agreement and ensure that the Memorandum and Articles of association of the company set out what happens in the event of a dissolution or dispute. This would be drafted in contemplation of business fallout and not just relationship fallout but it can work to protect the business. It might be easier to sign up to than an un-romantic pre/post nuptial agreement.
- Agree restrictive clauses to prevent the departing spouse from removing client lists, other data, or even setting up in direct competition or sharing confidential information.
- Document who owns what shares and clearly document any loans to the company.
- Get a pre or post-nuptial agreement. These can be very persuasive during divorce proceedings, provided each party has had independent legal advice at the time when the agreement was signed. They are difficult issues to raise with a partner, being seen as un- romantic, and not good ‘pillow talk’, but they can be used to protect just one asset such as the business.
- Make sure that your Will mirrors the pre-nuptial agreement terms as well, in order that in the event of your death, it is clear how your shares, or their cash value, will be distributed.