Family businesses in mediation
Some couples will not wish to remain business partners after a relationship breakdown. Here are some matters to consider when dealing with the family business depending on whether the ownership of the business is a limited company with shares or a partnership or a sole proprietorship.
It needs to be considered in mediation whether there is any opportunity for each spouse to carry on a separate business after divorce rather than wind up the existing business. If one spouse was not involved in the business in any way, but received an income for tax purposes then it should not be difficult for that spouse to disengage from the business.
It can be crucial to know the value of the business. For a sole trader the business may be worth less than the business where there is a board of directors and the spouses are members of the board. Other director's views will have to be taken into account. Accountancy advice will be needed to see how separation affects the business tax liabilities and capital gains tax or corporation tax. If one party wishes to carry on with the business and the other wishes to resign or retire, then other property or assets could be made available to buy out the partner's interest in the business.
Mediation can help a couple look at the different options for a spouse who has been involved for tax purposes only and contributed little in terms of work or capital and a spouse who has built up a business as a joint enterprise.
In mediation the parties will have to decide how a business is going to be divided or not. If one spouse is the sole trader and the business has provided all the family income, then there would be reluctance by that spouse to sell the business or to split it with the other spouse. If both spouses have been active participants in the business, then they have to decide how to give each of them a fair start in their new working life if they are not going to remain in the business. One could buy out the others shares or interest. This could be in cash, in other assets or payment by instalments by using money generated by the business.
The businessman or woman has to provide financial disclosure but this can be a problem. It may be difficult to work out the profits of a business especially if the accounts are not up to date, the business is in a period of change, and the stress of marriage breakdown has affected performance at work. Detailed valuations are not always encouraged - they can be expensive and disputed. A figure for the valuation of a business is less relevant if the business is not to be sold. Some form of agreement about the value is, however, necessary if a fair settlement is to be reached.
If capital is required from the business, the aim will be to find out how it can be released without destroying the business, for example by selling off some assets, or using the business assets as security to increase borrowing. If it does not make enough profit to pay reasonable maintenance and there is no other means of raising an appropriate lump sum then reluctantly the parties consider a sale of the business.