The number of self-employed workers in the UK is on the rise, with almost five million of us choosing to become our own boss. This increase is also fueling a rise in entrepreneurs seeking to “divorce-proof” their business.
With over 100,000 divorces annually, it is becoming increasingly common for entrepreneurs, both male and female, to act even before they start the divorce process.
It is usually entrepreneurs whose spouse has had no role in the business who want to protect what they have worked for. Their worst-case scenario is for their ex-spouse to have to be paid out for part of a business in which they have had no part in building.
Yet the law will take a dim view of anyone seeking to squirrel away assets or make significant changes to their circumstances in view of an impending divorce.
How to divorce-proof your business
Matrimonial assets are financial assets acquired during your marriage, such as the family home. Financial assets acquired either before your marriage or after you have separated are more likely to be classed as non-matrimonial assets. These might include an inheritance or shares purchased before you got married.
However, it is rarely clear cut because many spouses argue about their contribution to the business.
In one recent case, a divorcing husband who owned a successful media business had to pay his wife a portion of the value of the business. As a tax-efficient way to draw income from the business, his wife was named as a fellow director. On divorce she asserted that she was very involved in the business from the outset, from inputting ideas to organising the Christmas party.
Here are five ways to divorce-proof your business:
Consider a pre- or post-nuptial agreement
It might not be the most romantic gesture in the world, but all entrepreneurs really should consider a pre- or post-nuptial agreement if they want to help divorce-proof their business.
Even though they’re not legally binding in England and Wales, the courts are becoming more open to their use and will try uphold an agreement so long as: both parties had independent legal advice on the agreement, financial disclosure was undertaken when negotiating the agreement, and, in the case of pre-nuptial agreements, it is signed no later than one month before the wedding.
Keep your household and business finances separate
Keeping these separate will avoid any doubt around what is a matrimonial and a non-matrimonial asset.
Restrict involving your spouse in the company
Don’t sit around the kitchen table discussing your business in detail or use your spouse to help entertain staff or clients. Doing so will enable your spouse to show they had a role in the business.
Don’t make your spouse a company director
Lots of business owners also put their spouse as a director or employee for tax purposes, even if they have no real role in the company. This paves the way for them to argue a greater role in the business than they had. Don’t nominate your spouse as director, give them shares in the business or make them company secretary.
Find a lawyer who will look for resolution, not a fight
Divorce is devastating, but there are great lawyers out there who can negotiate the best deal without confrontation. Look for a lawyer who is a member of Resolution. All their members have undertaken training and believe in a constructive, non-confrontational approach to divorce and family matters.
Lisa Pepper is a family lawyer at London law firm Osbornes Law