Protecting the family business

Protecting the family business

Every family business is unique and it is the legacy, traditions and family commitment which make it a very distinctive entity.  Understandably, when a member of the business plans to get married or to separate there are often a lot of questions that need careful consideration for all concerned.

In our experience, concerns often originate from both the individual as well as the other members of the business and while of course other members of the business will be happy for a relative who is making plans to marry, there can be anxiety that this change might upset the smooth running of the business in the future. As everyone knows, where there is the possibility of future separation and divorce there are also risks associated with financial settlement.

If one of the partners or shareholders in a family business experiences separation or divorce, this can cause disruption for the business. There is the obvious emotional toll for everyone involved which is entirely understandable. Additionally, there is frequently intrusion into the affairs of the business through the inescapable requests for disclosure of business interests and associated valuations. The business owner may require to sell their interest in the business or transfer some or all of their interest to their spouse to satisfy any claim for financial provision.

Under Scots Law assets owned prior to marriage as well as gifted and inherited assets are excluded from the matrimonial pot and if business interest falls within one of those categories then it would not on the face of it be defined as matrimonial property. However, if a company is restructured during the marriage, this can result in the business owning spouse finding themselves open to a substantial claim on the value of that business in the event of divorce.

Similarly, if for example a business is sold, advice will need to be taken on protecting any new found capital.

The best way to protect a family business from the effects of marriage and divorce is to take early legal advice and consider entering into a well drafted prenuptial or postnuptial agreement ring-fencing business interests from claims in the event of a divorce. This will avoid the stress and cost of contested litigation on the issue later down the line.

If safeguards are adhered to, the usual advice given to parties is that they can — and should — expect to be held to the terms of any pre or post nuptial agreement entered into on a future divorce so long as the terms of any such agreement were fair and reasonable at the time they were entered into.

The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.

For more information please contact Sarah Feeney, Associate by email SFeeney@gilsongray.co.uk  or telephone +44 (0)141 530 2034