How to Protect Your Company Shares if You Divorce

If you and/or your spouse run a business and each of you holds shares in your company, it is vital to consider how the company can be protected in the event that your marriage breaks down and you divorce. Without protection and prior planning, disputes can arise.  For example, will one spouse cease to have any involvement in the decision-making process and how soon? What if business is disrupted due to arguments between you both? How will the shares be valued in that event and how soon should they be transferred?  What if the departing spouse sells their shares to an unsuitable third party?

Whether the shares were owned by one of the parties prior to the marriage and then shared or gifted to the other party, or whether the shares were inherited by one party and brought into the marriage may not necessarily mean they are ring fenced and deemed to be “non-matrimonial” and they will be looked at as an asset for sharing, within the context of the couples’ overall finances.  This is especially the case when the other combined assets (such as property, savings and pensions) are not sufficient to meet the parties’ needs.

So how can the risk be minimised?  

The most obvious advice is to seek expert legal advice, ideally long before the potential for disharmony arises. Practical steps can be implemented, such as incorporating specific provisions into your Articles of Association. These could include the compulsory sale of shares back to the business in the event of divorce, or the option for either party to buy the other’s shares.  Provision should also be made for routes to resolve deadlock, such as mediation.  If such provisions are made in good faith and well before the breakdown of the marriage, the court is likely to consider them valid.

You could also consider a shareholders’ agreement, making provision for steps to be taken in the event of personal events affecting shareholders. 

Anyone at the stage of planning a marriage could consider a pre-nuptial agreement, drafted to include protection of existing and planned businesses and associated assets.  Whilst the court can depart from the terms of a pre-nuptial agreement where necessary to distribute assets fairly, having provisions drawn up properly in such a document will be evidence of the parties’ intentions. 

If you have any questions or are seeking legal advice on anything discussed in this blog, please get in touch with our award winning family law team here to explore your options and find the right way forward to protect you and your future.