Divorce & the family business: The lessons that can be learnt from The Archers
The current storyline in the country's favourite radio soap opera, The Archers, which deals with Alice Carter's tragic decline into alcoholism and the impact this has had on her family, has gripped the nation.
Fans have flocked to social media to express sympathy, outrage and sadness at the unfolding events, most recently climaxing in the announcement that Alice and Chris Carter would divorce.
Aside from the issue of Alice’s alcoholism – both before and during her pregnancy and following the birth of her daughter, Martha, in March this year – the impending divorce between Chris and Alice has caused further ripples in the well-heeled Aldridge family. Alice’s father, Brian Aldridge, is particularly pre-occupied with the impact a divorce may have on the family finances, particularly given Alice’s shareholding in the family farming business. And for good reason.
When either party to divorce and associated financial remedy proceedings in England and Wales owns shares in a private family business, the court will take that shareholding into account when assessing what would be a fair outcome for the couple. The court has wide-ranging powers to deal with such assets, including making orders for the sale or transfer of shares, even if a spouse was not a director and did not previously own shares in the business him/herself or have any involvement in its day to day running.
The starting point in English law is an equal division of the matrimonial pot; however there are many considerations that the court must take into account in working out what a fair settlement would look like. Importantly for Alice, these include a consideration of the non-matrimonial nature of any assets. Arguing that certain assets should be ring-fenced due to their non-matrimonial nature can become more difficult to sustain in some circumstances, for example if the marriage has been long, if the couple have both been involved in the running of the business and there has been a significant growth in the value of the business during the course of the relationship. However in Alice and Chris’s case, it is likely that the court would take the view that Alice’s shares in Home Farm should be ring-fenced if at all possible.
Unlike other classes of assets (for example Chris and Alice’s bank and savings accounts, pensions and property) shares in a family business can be difficult to value. A valuation of a company is often required before spouses can begin to negotiate to divide the assets. Experts may be instructed to provide a valuation, however such valuations are not always straightforward. Covid-19 has had a significant impact on many businesses and experts may need to make certain assumptions or include a range of valuations, particularly as in some cases the full impact of the pandemic may not yet be known. Often, shares in family businesses are largely illiquid as the business may be unable to extract significant amounts of cash in order to meet the demands of a divorcing spouse. A better approach is often to look at the shares as a resource; i.e. after any funds have been drawn from the business to fund a financial settlement, how much income could the business produce in the future and therefore how much could be paid by way of a maintenance award from the shareholder to his or her ex-spouse.
It is possible, albeit rare, for a court to order that a business should be sold. The court recognises that by doing so it may cut off the stream of income that enables the owner to meet his/her own needs and – importantly in the context of a financial remedy application – for maintenance payments to be made to his/her spouse and/or for the benefit of their children. It may be that Chris has a substantial maintenance claim, not only for himself but also for the couple’s young baby, Martha.
The best way to ensure that family business assets are protected in the event of a divorce is to enter into a pre-nuptial agreement which ring-fences the shares and provides alternative ways of meeting the other party’s needs.
It remains to be seen how the divorce between Alice and Chris will proceed but one hopes that it will be resolved amicably, avoiding the need to go to Court whilst protecting Alice’s interest in Home Farm. Suffice to say, not since the infamous attempted murder of Rob Titchener by Helen Archer some 6 years ago has the Archers gripped the nation as much as Alice’s tragic decline. Avid Archers fans await further developments every evening with bated breath.
This article was first published in eprivateclient on 15th November 2021.