Graysons Solicitors In The Press

Business and Divorce: the facts

Over the last few years a number of divorce cases have grabbed the media spotlight. Some of this has been due to the couple’s celebrity status, Sir Paul McCartney and Heather Mills being the most prominent. But in the main the focus has been on high profile settlements. In 2004, Premiership footballer Ray Parlour was famously ordered to pay his wife 37% of his earnings for four years, and in 2006, a City fund manager, Alan Miller, was ordered to pay £5 million to his wife of less than three years. These are of course unusual cases because of the sums of money involved, but what do they tell us about the current state of divorce law in England & Wales, and more to the point, what implications do these judgements have for business people in our region?

Neil Dring is a partner at local solicitors Graysons and is a specialist matrimonial solicitor with over 20 years’ experience. “There is a lot of mis-information out there about who is entitled to what in a divorce,” says Neil. “I have dealt with many cases where people come in with unrealistic expectations based on hearsay from friends or stories in the tabloids.” He stresses, “Anyone who has business interests and is considering divorce, or thinks that their partner might be, should seek expert legal advice as early as possible. A specialist solicitor will help them to understand how the process works, and will work in partnership with their accountant to try and ensure the most favourable outcome.”

Here Neil gives some insight into how divorce affects people in business and answers some of the questions he is asked most frequently by them.

Q. What will happen to my business if I get divorced?

A. Recent case law demonstrates that there is no longer an assumption that a family business will automatically be protected on divorce. Every case is different and many factors have to be taken into account, but a family business will be treated as an asset of the family in the same way as the family home and any other assets.

One of the principles in divorce cases is that the family’s assets should be shared on a basis which reflects the respective contributions of the parties. However, an important point for business people to understand is that the court assesses that the contribution of the ‘homemaker’ is no less significant than that of the ‘breadwinner’. This means that a spouse is likely to be entitled to a share of the value of the business even if they had no direct involvement in it.

The court has to decide on an appropriate division of assets and this will be tested against the yardstick of equality, which for most cases will be a 50/50 split.

In the recent case of Sir Martin Sorrell, the advertising guru, he successfully argued that he had made a ‘stellar’ contribution to the family’s £100m wealth and was awarded 60% of the family’s assets. However, this was very much an exceptional case and if someone so successful gets only 60% of the assets, then most business owners will get less, and certainly won’t get very much more than half.

This does not mean that the business will have to be sold, and where the business is producing sufficient income to support the family (and perhaps meeting the running costs of two households), the court will be reluctant to enforce a sale as that would cut off the income stream.

Many methods of achieving a settlement are available. These range from disposal of business assets to regular maintenance, and in cases where one party wishes to maintain sole ownership of the business, transfer of non-business assets such as the matrimonial home may be an option.

Q. How is a settlement arrived at?

A. To enable a settlement to be reached valuations of all the family assets need to be obtained including property, pensions, investments and the business.

Valuing a business is often the most difficult aspect of this. The accounts of a business cannot by themselves give an accurate picture of its true worth as the values are historical and take no account of how the business is currently trading. The breakdown of the marriage may have had a negative impact on the profitability of the business since the last set of accounts were prepared. This is taken into account along with the business strategy, its future prospects and the prevailing market conditions to arrive at a value which is fair to both parties.

Once all this information is gathered the negotiation process gets underway. This is usually done by correspondence between solicitors, with the court being asked to approve the terms of the agreement so that it becomes a legally binding order. If agreement cannot be reached through a collaborative approach then a court hearing may be necessary.

Q. What about the matrimonial home?

A. The family house is often the most substantial capital asset that a couple own. In some cases the house may be sold and enough funds made available for both parties to buy new homes. Where there is not enough money, the priority is to provide a home for the children, more often than not with their mother. The court does recognise that it may not be fair to deprive the husband of his share of the capital in the long term and has discretion to make orders as it sees fit. This may be to place a deferred charge on the property whereby the husband would receive his share of the value of the house once certain trigger events happen. This might be on the eventual sale of the property, on the ex-wife remarrying or the children becoming independent.

The family home can also be useful in negotiating settlements where one party wants to retain ownership of the family business. By giving up a larger proportion, or all, of their rights over the value of the house it may be possible to retain sole ownership of the business and achieve a clean break.

This is just a taste of how the divorce process affects people with business interests. Each case is different and individual settlements will vary greatly depending on the circumstances. “The best advice I can give to anyone considering divorce is to take specialist legal advice as early as possible,” says Neil.

Neil is head of the matrimonial team at Graysons solicitors in Sheffield and can be contacted on 0800 048 0766 or via www.graysons.co.uk. Graysons also offer Inheritance Tax planning, Conveyancing and a range of other legal services.

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