HOW TO PROTECT YOUR BUSINESS IN YOUR DIVORCE

One of the biggest causes of divorce is financial problems.  But one of the biggest causes of business failure is divorce.

 

Make no bones about it, divorce is rough on business.  Any business owned by parties enduring separation and divorce will be poked and prodded.  The business may suddenly be called on to meet the costs of two households after separation.  All manner of documents in relation to its management and operation will be required to be prepared and produced.  It may be inspected and valued.  And, on top of all of that, it may need to fund the legal costs and valuation costs of the divorce of the spouses who own it.

 

All the while, the business may no longer have the undivided attention of the spouse who is responsible for its running.  The person who has nurtured it to date is no longer at the wheel.  Their energy, once dedicated to watching operations, developing strategy for growth, and monitoring results, is now being spent elsewhere – in resolving the issues arising from the separation – and the business is left to ‘survive’.

 

That’s a lot of ‘extra’ obligation on a business, obligation that did not exist before separation.  That these things will have some toll on any business seems almost inevitable.

 

For many people, their business represents years of hard work in the making, and has become something of their ‘extra’ child.  For it to languish, or worse, to fail, is the last thing they want to see happen after relationship breakdown.

 

It will be important, therefore, to be thoughtful in minimising that strain.  Failure to do so risks your businesses’ bottom line, and in a worst case, can be fatal to it.

 

That thought process begins with being realistic about the importance of the business to your circumstances, and that of your family.  Is your business is one of your most significant assets?  Does it generate the income which makes your ‘life’ work (payment of the housing loan, payment of school fees, etc)?  Will the costs of your life and lifestyle go unmet if the business is not there?

 

If ‘yes’ to any of these questions, then you have the proverbial ‘golden goose’ on your hands – without the golden eggs (income) the business lays, life will be very different, for you, and your spouse, and your family.

 

For most separated couples, this thinking leads to the following conceptual agreement – we need to separate and divorce in a way which is ‘soft’ on our business.

 

So, how to do that?

 

Many people who meet family lawyers for the first time think that there is only one way to resolve the financial aspects of their separation – going to Court, and getting a Judge to decide.

 

Not so.

 

In fact, for businesses, litigation can often be the worst option.  Judges have limited tools available to them to strike a property settlement.  Sometimes that means, in order to achieve a ‘clean break’ between spouses, they have to ‘force’ a division of property.  There can be unintended consequences of that – the sale of the business.

 

Outside of Court, you and your partner have far more options.  Instead, you can both self-drive your divorce, by choosing the process to resolve your family law problem.  That process can shield your business from the consequences you want to avoid.

 

With your family lawyer, you should examine all of the non-litigation options that you and your spouse have to resolve your problem (reaching agreement without Court intervention).  Spend time with your lawyer going through the pros and cons of each, and the possible impact of each on your business.

 

Those processes will likely include:-

 

  1. Negotiation (whether directly between you, or led by lawyers);
  2. Mediation;
  3. Arbitration;
  4. Collaborative divorce.

 

Each of these options has its own unique characteristics, and will work in different ways for your unique situation.

 

Ideally, you and your spouse will both identify with a particular option.  You can reveal that, and your reasons, to each other, and see if there is agreement about a process that you think will work for you both, and for your business.

 

I should be clear that some cases will require litigation.  There may be urgent issues which simply must be determined by a Court so as to put a holding pattern in place – that protection is the very purpose of the litigation options.  This may mean that there is no choice but to access the litigation system, promptly, and definitively.  But in my experience, the cases which genuinely require this approach are few in number.

 

Equally, a stumbling block may be your spouse’s unwillingness to join with you in looking alternatives to litigation.  This is where reality checking can help, by having the following discussion:-

 

  1. If the spouse who wants to ‘go to court’ is the person running the business, information about the impact of Court proceedings can be sobering, in particular, that the lifespan of court proceedings (and therefore, the period during which the business may be required to fund legal costs, and jump through all of the ‘hoops’ referred to above) may be in excess of 2 years. Additionally, the possibility of a sale of the business after 2 years in the Court system often illuminates that Court does not always deliver what litigants want;
  2. If the spouse hell-bent on litigation is the person who has not been running the business, the numbers never lie – a list of all of the things paid for with the income generated by that business, and a simulation of the expenses which would need to be let go if a business failed, or if all of its available cashflow is tied up in legal costs, can be compelling.

 

This information can lead to the realisation that an initial inclination towards ‘going to court’ may not be so feasible after all, and that one of the other options will work better, for the business, and the people whose divorce in which it now features.

 

Experienced family lawyers will be having this conversation with all of their clients, whether they are acting for the key person in the business, or the spouse who has had a role outside the business, and inviting them to identify the process which they think will work best.  Your divorce is, in many ways, your ‘life’, and you should therefore not be hesitant in asking your lawyer about the entire ‘menu’ of dispute resolution options which are available .

 

How you and your partner choose to resolve your family law problem is one of the biggest, and most important, you will ever make.  It is one that you can, and should, take care to get ‘right’.  Doing so can have a direct impact on your business, and therefore, on your and your family’s long-term outcome.

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