In order to be successful in business, it is important to forward plan, pre-empt potential threats and put in place a strategic plan to deal with whatever may lie ahead. However, few business owners take time to consider the significant impact relationship breakdown can have on their business.
The effects of relationship breakdown can be far reaching. Not only can it have a detrimental impact on productivity and cause short-term disruption, but it can often have a significant impact on any long-term plan for the business.
In this article, we look at how the family court will approach an interest in a business on relationship breakdown if the business owner or owners are not married or in a civil partnership.
Learn about how to protect your business from a divorce.
We will look at what steps can be taken to try and protect a business from relationship breakdown.
What steps can be taken to protect a business from relationship breakdown?
The court does not have the wide discretion they have on divorce to reach a fair financial solution between unmarried couples. The law is based on property ownership and trusts. Learn more about cohabitation law.
If an unmarried partner has no part in their partner’s business, either by way of shares or as a partner in the business, they are unable to make claims against the business and the business owner would retain their share free of any claims.
If both unmarried partners have a business interest, any dispute would be dealt with under the terms of partnership law principles or in accordance with company law. Any dispute would be dealt with through the commercial courts.
On the basis that a corporate vehicle is a separate legal entity to that of its owners, on relationship breakdown the court would generally respect the terms of any shareholders agreement/articles of association.
Governance documents
Given the law regulating arrangements for unmarried couples is based primarily on ownership, ideally a suite of governance documents, including bespoke director service/employment contracts, articles of association and shareholders agreement should clearly define the owner’s shareholdings, roles and obligations. Similarly, in the case of a partnership, a partnership agreement can include an express declaration of ownership.
If an unmarried partner is employed by the business, employment contracts should be drawn up and any claims would be resolved through the employment tribunal.
The good news is that if documents are not currently in place, it is never too late to put them in place or to review any current governance documents and explore whether changes can be made to help protect the owners of the business from the possible pitfalls of relationship breakdown.
Cohabitation agreement
Consider entering into a cohabitation agreement to regulate what may happen in the event of a relationship breakdown. A cohabitation agreement can confirm or declare how property or other assets are owned, regulate financial arrangements while the parties live together, and set out what will happen and who will get what if they separate.
Keep arrangements under regular review
Businesses and relationships change with time, and it is important that business owners are alive to the potential impact relationship breakdown can have on their business and pro-actively prepare for such an eventuality by regularly reviewing their governance documents and arrangements. This is particularly important in family run businesses.
For further support on any areas discussed, please get in touch with our team of expert family law solicitors.
