Family & Divorce Partner, Emily Brand provides expert commentary in the Financial Times looking at the following scenario...

Q: I set up a business, which my soon to be ex-wife later joined as a shareholder. Could the courts force me to hand over shares to her as part of the divorce?

Partner, Emily Brand, says... "there is a huge number of family-run businesses in the UK, so you are not alone in finding yourself in this position. Depending on your ex-wife’s role in the business, the extent to which (if at all) it was established before you began your relationship and subject to the nature and extent of your other assets, it is unlikely that your wife will remain a shareholder. 

The legislation requires that, where financially possible, there should be a “clean break” between a divorcing couple. The court will, therefore, try to ensure that all ties between you are severed as soon as possible, and they could decide that remaining as shareholders in the same company could extend that connection unnecessarily. 

Given that you set up the business, and working on the assumption that your ex-wife only plays a minimal role, the likelihood is that the court will seek to ascertain whether it is possible for you to “buy out” your ex-wife’s interest instead. 

This could depend on the liquidity of your company (or whether there are other assets which could be offset against the value of her interest). If there is sufficient liquidity, it may be that the court will require you to pay your ex-wife cash instalments over time.

Be aware, however, there was a case recently that provided for the non-business owner to retain or receive a minor shareholding and appointed a shadow director to sit on the board to ensure that her interest (and potential dividends) in the business was protected. 

The wife retained shares because there was insufficient cash in the company to pay her entitlement in full. Similarly, depending on the value of the company, the manner in which the shares are held and the nature and length of the marriage, there is also a risk that a court could order a sale of the company to ensure that your ex-wife receives the full value of her entitlement in a situation where there is limited liquidity. This is the worst-case scenario, but it is best to get legal advice as soon as you can to prepare for all outcomes that could arise from the divorce."

This article was first published in the Financial Times on 25th August 2022. 

Boodle Hatfield has recently published a comprehensive legal guide to help family businesses manage the fallout of divorce. Written by Partner, Katie O’Callaghan the book – A Legacy Intact: safeguarding your family business in the event of divorce details the legal mechanisms that are available to family businesses to protect their assets and avoid them losing control in future. Download a copy and find out more here.

Interested in hearing more? You can sign up to receive content from Boodle Hatfield by using the subscription link here.