RUNNING your own business can be hugely rewarding both emotionally and financially, but it can bring its own strains in terms of commitment,
insecurity of income and effect on family life.
Going into self-employment with your spouse or partner increases the potential reward – there's nothing more satisfying than building a successful family business – but the risks are also high.
Working together all day, pressures over division of
responsibilities and hierarchy, dealing with clients, mixing business issues with personal lives – all can cause massive pressure in a relationship. Add in the current economic problems caused by the credit crunch and,
for many people, the difficulties may become intolerable.
If two partners separate in these circumstances, then the business assets as well as personal holdings have to be divided.
Some couples may choose to try to keep the company going, but this is unusual. Both parties normally agree that a clean break offers the best possible solution, so both normally move forward on their own account.
There is likely to be a financial value in the company, but for many people – especially those with small unincorporated businesses – the biggest asset is still likely to be the family home.
The credit crunch is having a big effect on property values and this affects separation agreements. "The major issue is that at the moment, people are having difficulty selling their houses", explains Richard Smith, specialist in family law and partner at Simpson and Marwick.
"They may have signed a deal and want to move on, but psychologically
it is difficult to do so until the house is sold. In the past, when people were separating and house prices were climbing, they were able to err on the side of caution about how much they were going to get.
"But with prices falling, they no longer know what they're
going to receive. They can no longer assume they'll get more than they originally envisaged. They may end up getting less."
All this adds to pressure to maximise the return on the business – yet, in current trading conditions and with the UK on the edge of a recession, that may prove to be difficult.
"Often, one person may try to buy the other out of the business,"
says Smith. "But the credit crunch is making that more difficult too.
It may be that one partner needs a loan in order to purchase the other's
share in the company, but the lending constraints we are currently seeing may make that borrowing difficult."
If this happens, then the only solution may be to sell the business
to a third party. But distress sales rarely fetch high values, specially in the current economic climate. Clearly to sell it has to be saleable and the assets have to be divided. But every business is different.
Another issue is that assets are generally valued as of the date of
a couple's separation. But if the business is in the name of one of
the parties and its value declines after that date, then they stand to
lose out when the deal is done.
Courts will always try to take a fair view on the value and division
of resources, but the law is clear about the date at which this takes place and anyone trying to change this in their favour on the basis of diminished business value would have to plead special circumstances.
The outcome of such a case in the present climate, many lawyers agree,
would be uncertain.
Further complications arise if the business which is to be divided is a limited company – and especially if other people are also shareholding directors.
These issues can be resolved, but they are often far from straightforward.
Lesley Gordon, who is partner and head of the family team at Lindsays, also sees the problem of selling off a house at present as being a real burden on obtaining a full and final settlement in association with a divorce, whether a couple are in business together or not.
"People are being tied together for longer than they would otherwise be because their houses won't sell," she adds.
"They are still having to share payment of the outgoings, and may even decide to take it off the market altogether and let it for a period of time. We do always try to get a clean break settlement where we can, as we don't want to see people placed in a situation where they cannot achieve a final resolution and get closure.
It also means that both parties may have to stay in the house together for a period of time and that isn't good."
She points out that under legislation first introduced in 2006, if an asset such as property is jointly held, then its value can be reassessed after the date of separation and any increase – or as is
more likely in the current climate, decrease – can be factored in. But this provision does not apply to assets which are held in the name of an individual.
In the current credit crunch, another issue which can help to
force couples apart is an individual's spending pattern. One person
may think that another isn't spending enough on the business, or, conversely, is spending too much. Personal lives can be affected by things such as credit card spending or running up of debt – especially as it's now much harder to reschedule this and consolidate the lending.
"It may even be that one party has incurred a lot of debt and another
party knows very little about it," says Gordon. "That can be stressful enough on its own. But it may be the case that it's hard to reschedule the debt because of the current economic situation, and that obviously
leaves fewer options open."
The credit crunch means lawyers are having to think more carefully about achieving settlements, she says. "They have to be robust, but we have to take into account the possibility that the house might be on the
market for quite a time."
The full article contains 1011 words and appears in The Scotsman newspaper.
