‘Killing the goose’: divorce and family businesses

We all know the old fable of killing the goose that laid the golden eggs, which warns against the dangers of excessive greed. The saying was applied by one family law judge to situations where there is a family business.

There can be a fine balancing act between protecting income generated by a business for the benefit of the family, and extracting capital to satisfy a spouse’s claim. Collaborative law can help with this.

For separating couples in this situation there can be great concern, particularly for the party who is running the business. They can fear that divorce is going to spell the end of the business, and it having to be wound up or sold to release capital, or at least a severe disruption to its profitability. However, a joint approach to the question of how to treat the business can pay dividends.

Family lawyers know that there is a great deal of uncertainty around business valuations, with two accountants often coming to very different figures as to the value of the business. The liquidity of the assets in the business will need to be taken into account and usually, if the business is providing the only income for the family, it is in everyone’s interest to ensure the business remains as healthy as possible. It may be that a valuation is necessary or at least an accountant’s report to help a couple understand what income the business can generate and what capital, if any, can be extracted and when.

An approach that can help, pioneered by the family law group, Resolution, is the process known as collaborative law. Over 1,400 lawyers in England and Wales – all Resolution members – have already received training and can offer this option to their clients. Separating couples and their lawyers all sit down together and work things out face to face, under an agreement that the divorce won’t end up in Court.

Michael and Sarah separated after a long marriage of 20 years during which time Michael had built up his own small manufacturing business. “I was worried that, due to the divorce, I was going to lose everything I had worked for, for so long. However, I knew that, at heart, Sarah was a reasonable woman who understood the need to keep the business afloat to provide us both, and the children, with income in the future. We both also very much wanted to ensure that the divorce was ‘tailored’ to recognise our concerns about the business, rather than imposing a ‘one size fits all’ solution. We liked the idea of sitting around a table with our lawyers and working it out between us rather than risking having a judge, who might not have the time to properly understand our business, deciding things for us.”

“I won’t pretend that the collaborative process was always easy, and Sarah and I had to have some very frank discussions about what could and could not be afforded in terms of extracting value from the business. However, we both benefited from jointly instructing an accountant who was also trained in the collaborative process to assist with working out what was realistic in the circumstances.”

The collaborative process can provide a real alternative for couples who want to find a solution which takes account of their individual circumstances. It takes commitment and time, but for some people is the ideal way to manage what could otherwise be an impossible situation.

For more information about collaborative law or to contact a collaborative lawyer, log on to www.resolution.org.uk or contact Michelle Uppal at Miles & Partners Solicitors on 020 7426 0400 or email mu@milesandpartners.com.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.