The starting point in sorting out any divorce settlement is for each party to give a full and frank disclosure of all of their assets.
The law then distinguishes between "non-marital" assets (i.e. those that were gifted, inherited or owned before the marriage or generated after separation) and "marital" assets which were built up during the time you and your spouse were together. The extent to which business assets will be taken into account will partly depend on their provenance. Are they "marital" or "non-marital"?
Usually, the value of any assets generated during the marriage (which can include any increase in the value of assets owned before the marriage) will be treated as being part of the "pot" available for redistribution between a divorcing couple.
In the case of company, in theory, the court has the power to transfer the ownership of shares from one party to another. However, judges recognise that where a couple is divorcing, from a commercial perspective it is unwise to make them co-owners of a business which they previously didn't co-own; other means of compensating the non-shareholder spouse would be considered first.
How can corporate governance documents help?
The most effective barrier against having a share transfer imposed by a court is to ensure the company's articles of association contain pre-emption provisions. These would dictate that founder shares have to be offered to co-founders, before they can be transferred outside the founder group.
If the articles are to allow for shares to be gifted to a spouse as a "privileged relation" for tax reasons, it should be a pre-requisite of those shares being registered that there is a shareholders' agreement. This should be backed up by a deed of adherence, stipulating that shares gifted to a spouse will be transferred or deemed transferred back to the founder in the event of a divorce or separation.
This won't necessarily stop the founder having to account to his or her spouse for their fair share of the value generated in the shareholding during the marriage, but it should prevent a potentially hostile ex-spouse from continuing to hold shares post-divorce.
What can you do as an individual?
If you own an interest in a company prior to getting married, we would always advise you to enter into a pre-marital agreement ("pre-nup") that protects your shares in the event of a future divorce.
If you are already married, talk to us about whether a post-marital agreement is worth considering.
Every case needs to be considered on its facts. Generally, a marital agreement in tandem with well-drafted corporate governance documents can be a very effective means of limiting the impact of divorce on a privately-owned business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
