Carving up a family business for a divorce settlement can spell disaster for the company, and the best option is to plan ahead rather than resort to crisis management.
A businessman is facing a hearing in the Supreme Court to answer claims that he misrepresented the value of his company to cheat his ex-wife out of millions in their divorce settlement.
When the Sharlands divorced after 17 years of marriage, Alison Sharland, 46, was awarded a settlement of over £10 million in cash and properties. This left her ex-husband, AppSense chairman Charles Sharland, with assets worth just £5.64 million, but a bigger share of the profits on any future sale of shares in his company. The company was presented as having a value of between £30 million and £50 million, but subsequently it turned out to be worth up to £600m and was being prepared for an initial public offering, contrary to the evidence given by Mr Sharland in court.
The couple have been fighting and appealing through the courts, but now the case is going to the Supreme Court, where they will consider whether the original settlement was unjust due to information being concealed by Mr Sharland.
Until recently, couples rarely considered the legal and financial issues that could arise out of dividing up family-owned businesses when divorce happened. But the family court has wide ranging powers to redistribute assets and although the aim will be to avoid any detrimental effect on the profitability of the business, the court can make decisions on what happens to the ownership of a company or demand a distribution of funds, all of which can have a significant impact.
Explained family law expert Richard Pennington of Ward Gethin Archer solicitors: "It's often very difficult to value non quoted companies, and the easier option is to protect a family business before problems arise.
"Firstly, you can take steps to protect the company itself, for example, by having the articles of association spell out a policy on shareholding. This could be that only certain members of the family can hold shares, or that they must be handed back on divorce. It won't stop the value of the business being taken into account by the court when deciding the financial settlement, but it can help guard against any negative impact on the running of the business during any divorce.
"The other thing to consider is how to protect your assets through a pre or post nuptial agreement. In a marriage or civil partnership this sort of agreement can be used to ringfence interests, including in any family-owned business, to help guard against any financial settlement if things go wrong. These pre/post nups are still not binding, but they are being given increasing weight and it's certainly a useful part of the mix."
Richard added: "We all know how tough it can be sitting down to talk about what would happen if things went wrong, but being able to discuss things openly is a good test of a relationship as well as helping to safeguard the future."
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