Family relationships are a difficult thing – within a marriage, we work on the basis that everything’s going to be good; and we know that in some cases, in some marriages, it just doesn’t work out. When things don’t work out, there are lots of issues to resolve, and a lot that’s predicated on the strength and stability of the unit.

It’s quite common for shares in companies to be held between spouses. This could be for a number of reasons. It may be that both spouses are fully involved in the business, and the shareholding reflects that; or there could be an element of tax planning in it. Often, even where there are unrelated individuals involved in a business, their spouses are also shown as shareholders – perhaps with different classes of shares – or as directors. The different individuals may have different classes of shares, different voting rights and different rights to have a seat on the Board. There can be other complications – whether it should happen or not, we see “family” assets bought in the company name, or expenses put through the business.

We’d say a couple of things, to start. The first, take tax advice before you do something for a tax reason. And make sure the tax advice is robust, professional, and expert. We see advisers who are not those things but claim to perform magic with tax; they make it disappear. It’s been said that one thing worse than paying taxes is not paying taxes; and there is truth in that. But also – don’t let the tax tail wag the business dog.

Very often, unrelated people going into business with each other will enter into a shareholders’ agreement (or a partnership agreement, if it’s not a limited company). Often, but not always; not often enough, really. But spouses in business together, whether both are active or not, are less likely to do so. The reason’s obvious, and similar to the reluctance to enter into prenuptial agreements. The relationship is supposed to be for life, and planning for it to finish feels like it’s condemning it to end. Nonetheless, especially and less awkwardly where there are two or more active but unrelated business partners, and then spouses with different shares who are not related, it’s wise to have a shareholders’ agreement which allows for shares to be transferred between spouses if the marriage breaks down.

It’s usually in no-one’s interest for the business itself to be brought down by marriage breakdown, but there is a danger that, without forethought, that can happen. Involving the uninvolved business partner in a marital dispute can be very damaging to the business relationship; especially as there is potential for the directors to be brought into family proceedings, even if they are not from the family having difficulties.

Businesspeople should also be wary of trying to change their position within the business when they see family problems looming – such as transferring assets out, transferring shares or other steps. The court may well have power to unwind the changes; and the attempt to divert assets or duck responsibility will not cast the person doing it in a good light in the eyes of the court. The court will look at what the true position is and be suspicious of one manufactured by one party to improve their position. Family judges and lawyers have seen it all – they are not going to be hoodwinked easily. This again reinforces the need to have agreements in place from the outset – generally shareholders’ agreements – ensuring everyone has been properly and independently advised.

If a business is an asset in the context of divorce, then valuation may well be an issue. The valuation of businesses can take many forms, but in this context the most likely one is the open market sale value – not the value of assets only, or a value a friendly accountant might offer. Of course, there is a temptation to down-value everything; but again, it may well not wash. This may apply even when there is – as there might well be – an argument to maintain the business and ensure it can continue, and not be broken up or sold, because it is the source of income for the family in the long term.

As with so much on marriage breakdown – it’s important to understand the nature of business assets, to deal transparently and fairly with them, and to run the business as if the unforeseen might occur. As corporate lawyers, we say to run your business as if you’re getting ready to sell it. Similarly – you can’t assume that family relationships, just like business relationships, will last in harmony forever.

DISCLAIMER: The information and opinions expressed in this article does not address individual requirements and is for informational purposes only. It does not constitute any form of legal advice and should not be relied on or treated as a substitute for specific advice relevant to your particular circumstances.