Safeguarding your assets when running a family business
- Credit: Archant
Willans LLP associate Rachel Sugden and senior associate Jonathan Eager discuss safeguarding your assets when personal matters overlap with the family business
Around 42%* of marriages end in divorce (and we don't need statistics to tell us that 100% of people eventually die). So, if you own all or part of a family business, it's sobering yet essential to plan for the knock-on effects should something unfortunate happen to you or a key person within the business.
This can mean the difference between a business that weathers the storm, and one that flounders.
A crisis plan that makes sure that the business can operate without key individuals is important, says associate Rachel Sugden of leading Gloucestershire law firm Willans LLP. This should amount to a review of not only the business' constitutional structure, but also of the personal affairs of the individuals involved, she explains.
"In family businesses, it is not uncommon for the founding members to remain involved in the running of the business into their later years. Something that is rarely considered is the potential for a lack of capacity or even unexpected death of key individuals.
"Most people assume that their partners could manage without them or that their family could take their place - but this may not necessarily be the case. Business accounts may be frozen, leaving your partners unable to operate the simple every-day tasks of paying bills and salaries.
It may be months before the account can be accessed, by which time it is possible that the business will have suffered irreparable damage.
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"Making a lasting power of attorney for your business interests enables you to nominate sensible and competent attorneys to take the reins."
It is also important to make sure that the provisions of your will are sensible and suitable to the needs of both the business and your family, Rachel adds.
"The correct combination of contractual provisions and insurance policies can offer business partners the comfort of retaining control of the business following the death of a partner, whilst also ensuring that the cash benefit of that interest ends up in the hands of the bereaved family."
Family businesses are often the source of much of the parties' wealth and may well be the source of most of their future income. But if the family is rocked by a divorce, your shares are likely to be seen as marital assets and may be divided, warns senior associate in Willans' family law team, Jonathan Eager.
"The court and the divorcing parties need to consider factors like the weight of the business valuation, and how that relates to the way other assets are divided," he says.
Jonathan advises family business owners to remember that their business' value for the purpose of divorce may be a lot less than the value of other assets, like the family home or cash, which highlights the need for specialist advice. It is important to consider the other parties that may suffer the knock-on effects of any change in the business valuation, such as other family members, shareholders, and staff.
"Prenuptial agreements, although not legally binding on the court, are a persuasive factor if entered into correctly, and can be a useful way of clarifying to the court what you have agreed upon with your spouse in terms of the assets you own, including shares of the family business, if a divorce takes place."
For clear advice from Legal 500-rated solicitors who take the time to understand your business and family, get in touch with Willans' lawyers on 01242 514000 or visit willans.co.uk.