Business assets on divorce
Sorting out financial entitlements on divorce can be complex and contentious especially where one spouse has business assets or there is a family business.
Entitlement to business assets
The difficulty often arises because the spouse that owns business assets will be well informed that the non-owning spouse will be able to make a claim on those assets, potentially up to 50%. In many cases, the business owning spouse, especially where there is a valuable business, will attempt to move the assets out of his or her name into a corporate structure or may be less than forthcoming as to what the assets are and where they are located.
Is selling or transferring assets on divorce possible or the best approach?
Even if the asset owning spouse is prepared to co-operate and has not acted in the above manner, complications can arise because, taking as an example, he or she may own 50% of a small business and may be bound by a shareholders agreement or articles of association which do not permit transfer of shares to anyone else without the other shareholders having pre-emption. If shares are to be sold as part of a divorce financial settlement, it is likely this will be on a heavily discounted basis in many cases and this may not be in the interests of or considered fair for both parties. An additional factor, especially where there are children, is whether realising investments or shares in a business may result in the owning spouse no longer having a livelihood. In that case, how are the children going to be maintained in the future ? One potential solution to this issue would be a deferred entitlement to the party not involved in the business.
Disclosure of assets on divorce – Immerman case
It is always advisable to seek to resolve divorce issues without resorting to courts but regrettably, it is not uncommon for one of the parties to try and hide assets. The other spouse may not even know about some business assets and this makes the process of disclosure a vital aspect of financial claims on divorce. Disclosure generally is often and key and hotly contested area of legal disputes. The party resisting disclosure will often claim that the other party is simply “fishing” for documents and evidence of the requesting party cannot clearly define what they are seeking. The court will also need to take into act proportionality, since in some cases, disclosure can be very time consuming and involve thousands of documents or emails or other data. In the Immerman case, as is often the case, the parties were literally at loggerheads and the divorce was high value. Part of the dispute over disclosure involved the fact that Mr Immerman claimed that his wife has become aware of assets by unlawful means. In the event, he refused to comply with court orders for disclosure and preferred to go to prison than make full disclosure.
Assets not owned by spouse – company law v divorce law
Another landmark recent case which went all the way to the Supreme Court deals with the issue of what happens if the spouse that owns valuable shares in a business deliberately transfers those assets out of his or her name. In the case in question, the husband had set up a highly complex corporate structure where shares in companies which owned assets were owned by other companies, not by him personally, and where it was very difficult to ascertain the ultimate owner. In a sense the ownership was not the key issue because the husband had control of the assets in practical terms and was able to derive significant income from them. The difficulty with this situation is that it creates a conflict between strict company law and divorce law. Corporate law is set up for certainty and so that investors or lenders to a company should be able to protect their interests without reference to competing claims by potentially unknown or undisclosed 3rd parties (such as non-owning spouse). In the end, the case was determined under trust law and sidestepping the key conflict between these areas of law, leaving the situation largely unresolved.
Taking all of the above into account, and bearing in mind the greater significance the courts are now giving to prenuptial agreements, where either or both parties have businesses or business assets they should seriously consider a prenuptial agreement.
For advice on divorce, prenuptial agreements or financial aspects on divorce, please get in touch for a free initial discussion or meeting.
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