Jacqueline Stroud: Divorce and family businesses

Jacqueline Stroud, partner at law firm MacRoberts. Picture: Contributed
Jacqueline Stroud, partner at law firm MacRoberts. Picture: Contributed
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Research shows that divorce ranks along with death of a loved one as one of the most stressful of lifetime events. Although the husband and wife bear the brunt of the stress, the impact can reverberate through the wider family – particularly if a family business is involved.

Anyone considering a marriage, especially where there is family wealth, would be well advised to consider entering into a pre-nuptial agreement. It’s not the most romantic of thoughts to plan for the breakdown of a relationship before a marriage has even taken place – but it is in many cases a wise step to take and provides the protection of assets that each party is bringing to the marriage.

Very generally speaking, on divorce, either party can make a claim against property accumulated during the course of the marriage. Well-intentioned tax advice or the restructure of a business could mean that an asset, not previously “up for grabs”, could end up being fair game for a departing spouse.

READ MORE: ‘Seven-year itch’ sees Scots couples divorce before 10th anniversary

If a family business is built up prior to a marriage (sometimes over many generations) it would not normally be considered matrimonial property. However, if the business undergoes growth or restructuring during the course of the marriage, an argument arises that the business is now matrimonial property and the husband or wife can claim their share.

Equally, if one party to a marriage decides to give some of their interest in the family business to a spouse for tax purposes, then that means the business would be subject to a claim in the event of a divorce.

The non-business owning spouse may also argue that they have contributed to the increase in value of the business by helping out with certain tasks, and therefore they have made a “non-economic contribution”.

These types of claims can cause distress across the generations, particularly if the business had been in the family for decades. A well-drafted pre-nuptial agreement could ensure the business is protected, whatever the scenario, and safeguard how this should be dealt with in the event of a divorce.

None of this is an enjoyable process, but a pre-nuptial agreement could save a lot of heartache and preserve a family business for future generations.

• Jacqueline Stroud is a partner at law firm MacRoberts