Many people come into a relationship bringing with them an already established family business. Others may choose to establish a new family business, together or separately, during a relationship. However, when relationships fail and couples are faced with Divorce, the question of what will happen to this business then naturally becomes a source of huge concern.
What can be beneficial for couples where an already established family business is involved, is the creation of a Pre-Nuptial Agreement before marriage. It is important to note that Pre-Nuptial Agreements are not recognised in Irish Law and are not binding in any Court. However, they can be a factor which Judges may consider in a future Divorce application if there has been full and open disclosure of all assets and if both parties have had the benefit of independent legal advice.
While the desired goal of the Family Law Courts is to try to keep family business assets and inherited assets brought into the marriage, out of the marital pot, this is not always possible in your average divorce case, due to the need to properly provide for both parties.
In considering how to deal with business assets, certain key factors are important:
- When was the family business established?
It is important to first establish the full history of the business. You would need to be clear on when it was set up and who made what investments into the business. Sometimes, the business is older than the relationship and this can strengthen the argument that the person who brought the business with them should retain it. However, this would need to be balanced against the delivery of proper provision for the other spouse, the overall needs of the family and any dependent children.
- What role does each spouse have in the family business?
A spouse’s role in the family business can have many guises. In establishing what their role is you need to look at whether they managed the day-to-day operations of the business or whether they worked in a specific role, either paid or unpaid. It could be that they made a financial investment in the business or it could be a direct legal involvement such as directorship. Also of relevance, is that one spouse may have given up work in order to support the family, which in turn enabled the other to successfully progress in the business.
It should be noted that being a director of a company does not constitute ownership of a company. If a spouse or partner has been made a director or a company secretary, they will not necessarily have ownership or shares in the company or business. It could be beneficial, at the outset, to create a specific buy-sell agreement so that there could be a relatively fixed cost to buy one or other out. It would also be important to set out payment terms and a dividend policy in the business contracts.
However, it is important to remember that there is no guarantee that these agreements will be adhered to by the Court. Due to the concept of proper provision, all property, no matter how the parties obtain it, is available to be considered by the Court in the distribution of assets.
- Is the family business a valuable asset?
The value of the business in the overall division of the marital pot is important to determine. It is best to obtain a formal valuation of the family business. If the family business is the main asset in the marital pot, the key will be to extract value from the company to enable proper provision for both parties without having a negative impact on the company’s long-term ability to carry on. There is no set way to do this and ultimately, it is a balancing act for the Court to undertake. Courts are reluctant to interfere with the smooth running of a business or making changes to its ownership but the business will be part of the marital pot if it forms a significant asset of the marriage. As always, the key priority is to focus all minds upon agreement rather than conflict.
Family businesses and divorce settlements contain a plethora of complex legal issues. Wolfe & Co LLP are here to assist you to reach a solution that both parties can live with and to ensure the family business can continue to flourish.
By Aislinn Collins Solicitor.
This article is for general information purposes/general overview only and does not constitute legal or other professional advice. We recommend seeking legal advice to interpret and advise on any aspect of the law.
March 2023 Wolfe & Co. LLP Solicitors