We are seeing a particular spike in issues arising when a couple are partners in business as well as in life. Such marriages are fuelled by profit and loss as much as hearts and flowers.
When personal and business relationships intertwine, separation is always difficult and under the spotlight of Covid, the intensity of the unravelling has become far greater. It is estimated that around 1.4 million couples in the UK are also joint owners of a business. It’s common for a husband and wife to be 50 per cent-50 per cent shareholders and the two directors in a company, because – like other things in better times – they expect the business to be shared equally. When relationships end, arguments over what happens to the company cross over from divorce and family law into company and corporate law.
We often advise divorcing clients that they should treat their business with the same care, respect and consideration as they treat their children. It’s important to realise that, even when their personal relationship is breaking down, both spouses need to look after the business side of things. This is especially the case if it’s the primary source of household income.
Business can really suffer in a divorce when the husband and wife each have a 50 per cent stake. There is no majority owner. Critical business decisions, therefore, need to be taken by both spouses. That can be difficult when they refuse to speak to each other, or even be in the same room. The result can be complete deadlock and a sudden stagnation for the company – which makes things much worse because the knock-on effect is less income for both. Calm, clear-headed decisions need to be taken about a business. That is hard enough during a pandemic, never mind during a divorce.
It’s essential your legal team is able to advise on the company law issues that might arise in divorce. A cross-disciplinary collaboration between family law and company law practices within a law firm is crucial. The advice of one could have an impact on the other. For example, a family lawyer may often advise a divorcing client to access as much cash as they can. However, if they clear out the company’s bank account, that could very well be a breach of their director’s duties. So 360-degree advice is needed to chart a course through what can sometimes be conflicting legal imperatives.
It’s also vital to recognise what has happened over the last 12 months. Business owners have fought tooth and nail to survive. Money (as well as blood, sweat and tears) has been invested into successor survival and for some, there is no prospect of an upturn in 2021. In many cases, this will have been a contributory factor to any separation. Steadying the ship, and obtaining the best outcome for the couple, business and employees, is tricky.
Compromise is always needed in divorce. It may be that the compromise is not to split the company. Valuations are hugely challenging just now. Some may be artificially low, others artificially high. It may not be a good time to unpick business assets and realise value. It is entirely possible for a couple to separate and still retain ownership of a company (we know of several companies that have gone from strength to strength after their owners divorced). To make these decisions, family and company law specialists must work hand in hand and be prepared to think creatively with the couple.
Divorcing couples need to be open to creative solutions. No break-up is easy. At the moment, running a business is as hard as it might ever be. Combining separation and running a business, in the middle of a pandemic, is stressful beyond imagining. Getting only half the advice needed can only add to that.
Derek Hamill is Partner and Head of Corporate, Gilson Gray