A Legacy Intact: safeguarding your family business in the event of divorce - Book - Page 25
(3) STANDARD OF
(5) PERSONAL ASSETS.
It is important to note that whilst
For this reason the Court has been
LIVING.
This includes looking at if, and
the Court has the ability to order
reluctant to order the transfer of
The Court is interested in how the
to what extent, the needs of the
a sale of a spouse’s shares in a
shares by one spouse to another
family have lived their married
departing spouse as assessed by
business, it does not have the power
in private family companies if the
life to provide a benchmark in
the Family Court can be met from
to order a sale of the company’s
result would be both parties’ wealth
assessing what is reasonable for
other non-company assets of the
underlying
being tied up in the same business,
each spouse’s needs in the future.
shareholder.
when
This includes the extent to which
assets.
Accordingly,
the
especially where one of the parties
Family Court will look at perhaps
Court cannot order the sale of an
is involved in the management of the
the family’s standard of living has
capital payments over a period of
investment property, for example,
business. However, sometimes this
been affected by and/or has been
time from the shareholder to the
which is owned by the business.
is the only feasible option available
enhanced by drawing down on the
other spouse based on forecasts
Liquidity issues might be addressed
to the Court if it wants to avoid a
income
from
the
shareholding.
of future capital events within the
by ordering deferred lump sums
sale and there is not enough liquidity
If
has
been
the
family’s
business and/or likely future income
to a departing spouse which is
within the company or elsewhere
primary source of income then an
from it. The Family Court will look
equal to a percentage share in the
to meet one spouse’s entitlement.
assessment of the future income
at any form of practical method of
business, the trigger date being the
In such circumstances, the Court
from the shareholding is going to
meeting
next liquidity event of the business.
will need to consider whether there
be a vital component of the case.
needs before contemplating the
this
the
If they cannot, the
departing
spouse’s
option of last resort, namely a sale.
(4) INCOME STREAM.
If the income that the shareholder
receives from the family business
is essential to the maintenance of
the family and the standard of living,
then the Court may think twice
about ordering a sale of the shares
as it would terminate the family
income stream, which is likely to
be
seen
as
counter-productive.
(6)
L I Q U I D I T Y.
The Family Court will look at how
easily value can be extracted from
the family business. For instance,
if sufficient value can be extracted
to meet the departing spouse’s
needs through dividends then the
Family Court would be much less
likely to order the transfer of shares.
considering
liquidity,
should be future longstop dates by
(7) CLEAN BREAK.
which one spouse should be bought
The Family Court will, where possible,
out of the business or by which there
favour a solution which allows both
should be a sale. It will also need to
parties a clean break from each
put in place appropriate measures
other. It acknowledges that the best
to ensure the business is run with
option, if at all possible, is for the
both spouses’ interests protected.
parties’ financial ties to be severed.
This may ring alarm bells to family
In
break
business owners who could end
financial
up with a restrictive shareholders’
another.
agreement in place to protect the
legal
terms,
dismisses
claims
a
clean
spouses’
against
one
divorcing
spouse’s
shareholding
which dictates how the company
ought to be run.
A LEGACY INTACT - EXPOSURE
