Running a family business can be extremely stressful and even more so when your business partner is your husband or wife and the lines between home life and the business are blurred. Sometimes it will be too much for a relationship to endure, resulting in separation and divorce. But what happens then to the family business?
Grant Franklin is a principal at our Milton Keynes office. He has spent the past 30 years guiding business owners through both the ups and downs of running a business.
Any separation or divorce is an emotionally charged and stressful time, with the process typically led by a specialist lawyer. But where a business is concerned, Grant is often the first port of call.
“A divorce does not automatically result in a family owned business being broken up or sold and divided between the separating individuals,” says Grant. “In fact, in most cases, it is in the best interests of both parties to retain the business to provide them with ongoing financial maintenance, and this is generally the view of the Court – the ‘why kill the golden goose’ issue. However, in most cases the parties will not want ongoing business ties after divorce.”
The first step in any divorce is to ascertain the value of the combined assets of the family before those assets are divided. A family owned business will be considered one of those assets and, alongside the family home, an asset with considerable potential value.
“It is my role to put a value to the business before it is added to the matrimonial pot for distribution,” explains Grant. “And that is not always straight forward. A business is not a liquid asset and assessing its value requires knowledge and expertise with no single basis for such an assessment.”
“Many factors need to be considered, including the sector in which it operates, where the business is in its growth cycle, and how reliant the business is on its owners. If the business owns property or other assets, they may need to be separately valued.”
Grant adds: “It can be further complicated if one party holds shares but is not actively involved in the day-to-day running of the business. He or she may well be used to a certain standard of living that is effectively provided by the income generated by a business and perceive its value to be much greater that it is. A business, unlike the family home or a sports car or piece of jewellery, is not so well understood and as a result can be difficult to value, and that can often lead to some difficult conversations and negotiations.”
In addition to valuing the business, Grant and his team will look to explore the possibility of the business raising funds and consider whether there are any standalone or surplus assets that could be sold to raise a capital sum as part of the settlement.
The picture can change if the business was created before the marriage or if it is a long-established family-owned business. In some cases, it may be necessary to ring-fence some or all of the business if it was established prior to the marriage. This may require valuations at different points in time.
Any divorce will be a pivotal moment in the lives of those affected and is made just that harder when a business is at the centre of a relationship. But with good advice and planning it should not mean the end of the road for the business.
If you would like more information on our Divorce and Family Businesses Services, contact Grant Franklin on 01908 713870 or grant.franklin@hhllp.co.uk.
