Can divorce put the future of the business and its reputation in jeopardy? - Boodle Hatfield

Your lawyers since 1722

21 Nov 2023

Can divorce put the future of the business and its reputation in jeopardy?

3 min read

This week marks 'Family Business Week' - a week-long celebration championing the central role family-owned businesses play in shaping and supporting their local communities, economy and natural environment. Led by Family Business UK, the 3rd annual celebration runs from Monday 20 - 24 November and this year shines a spotlight on innovative and pioneering family business leaders and organisations that are shaping the future of family business for the next generation.

We know that in the UK and around the world, family businesses are the lifeblood of a successful economy. Family businesses derive great advantages from the nature of their ownership. But, they also face risks that are specific only to them. One such risk is the damage that can be caused when a relationship at the heart of the business breaks down. Quite apart from the emotional fallout, a divorce involving a shareholder can be cataclysmic for the long-term future of a business. The scale of the risk is often not well understood by business owners – particularly those in the early stages of building their legacy.

In 2022, I penned a comprehensive guide that outlines how business owners can weather the emotional and financial storm of divorce proceedings, protect assets and avoid the loss of control in the future.  'A Legacy Intact'  looks at the range of tried and tested legal mechanisms that families and their associated enterprises can exercise to mitigate the impact of a marriage breakdown on the future of a family business. 

The extent of the English Family Court’s wide-ranging powers to make financial orders that require the payment of lump sums or a series of lump sums, the sale or transfer of property, the sale or transfer of shares or pensions, as well as maintenance for one spouse and/or for children is not always fully understood. Business owners are often unaware that all assets will be on the table - not just traditional and/or "matrimonial" assets – meaning there is no guarantee the business will survive a divorce intact. And many are equally surprised to learn that the Court’s powers also extend to assets outside of this country, encompassing a spouse’s worldwide wealth.

With the likelihood of a shareholder divorce being a real possibility for many family businesses at some stage (particularly those with multiple family members of different generations), the guide explores how 'love' and 'business' are so closely intertwined. With careful planning, open conversations at an early stage and informed guidance, a family legacy can remain intact even in the event of a break up. Although pre-nuptial agreements are not the natural language of love and in many cases are raised in hushed voices, they can be an essential part of pre-wedding planning, especially if the commercial success of a business could be at stake. Sowing the seeds around family governance and having these sensitive conversations early with the next generation can save further heartbreak down the line and even create a foundation of open communication for couples before they embark on marriage and life together as future successors of an established family enterprise.

The guide - 'A legacy intact. Safeguarding your family business in the event of divorce' is informed by our experience of the challenges that can occur in family businesses, where relationships are complex and evolving and naturally carry emotional ties that do not exist in other organisations. The guide is illustrated with practical scenarios and contains guidance coloured by our appreciation of the sensitivity and careful approach needed. More information regarding 'A Legacy Intact', and how to download a copy, can be found here or via the link below.

Boodle Hatfield is one of Family Business UK’s (FBUK) corporate partners and has been carefully selected as a highly respected independent family business service provider. More information about FBUK and their Family Business Week can be found here. 

Written by