Five costly mistakes people make during a divorce
- Credit: Getty/Prettys
It is not unusual for people to look for a new start in a new year, says Matthew Clemence, senior associate, collaborative lawyer and mediator at East Anglia's Prettys.
But how can separating couples - who are also business co-owners - make it easier on their staff and key stakeholders?
These are the common mistakes they should try to avoid:
n Not appreciating that a business is a matrimonial asset and believing it will be ring-fenced from discussions over finances.
Clearly a co-owned business between spouses will be an asset to be divided. Business interests of one spouse are no less relevant and shareholdings and income streams will need to be valued as part of the divorce proceedings. n Not being immediately honest with co-directors and key individuals about significant changes in personal life.
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Co-directors and key individuals need to know if there will be a brief period of turbulence while the business is being valued and potentially liquidated.
Relevant individuals need to be aware from the outset if the divorce of one individual will have ramifications for all. Early warning allows suitable planning for all eventualities. n Failing to introduce the business accountants to the divorce solicitor early on - the accountants will later play a key part in reviewing valuations of the business and it is sensible that the accountant and the solicitor work cooperatively from the outset.
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Another error is not factoring tax into valuations and potential transfers. Tax will be an important and potentially expensive consideration and early advice on this from a suitable accountant is critical. n Being tempted not to make full financial disclosure.
The penalties for non-disclosure of financial documents within divorce and financial proceedings can be significant.
Rather than be tempted to hide documents, instead working smartly with an accountant to think about all possibilities of how to buy out the other spouse's interest without having to liquidate or sell. n Not planning for the possibility of divorce in the future.
If an individual is starting a new business, planning an exit strategy for the individual and the business in the event of divorce is sensible and important.
Taking early legal advice from both a family solicitor and a corporate solicitor before setting up the business is critical.
A pre-nuptial agreement can plan for the possibility of divorce and what is to happen to the business, reinforced by a carefully-worded shareholders' or partnership agreement. If a shareholding is to be granted to one of the couple by the other, the class of shares should be considered along with the rights acquired and the impact, or not, this will have on the business in the future.
Unravelling business interests is complex and can be costly. Early planning with open dialogue, ideally round table with accountant involvement, can save a lot of heartache later down the line.