MARRIAGE BREAKDOWN AND

THE EFFECT ON THE FAMILY BUSINESS

Businesses take many shapes and forms.  There is the business with a sole proprietor, husband and wife in business together, or one of them in partnership with others or a shareholder in a limited company.

When a marriage breaks down it is very likely to put a considerable strain on both parties and that strain can often have a detrimental effect on a business.  Courts regularly see business accounts showing considerably reduced profits in the year of separation and the following year.  The difficulty for any Judge is to decide whether such reduction is a direct consequence of the separation or a deliberate attempt on the part of the husband – I will assume for the purposes of this article that the husband is the business owner – to show his finances in an unfavourable light.

My reference to ‘Courts’ and ‘Judge’ in the preceding paragraph assumes that a case has not been amicably resolved.  Most financial disputes arising out of a marriage breakdown are settled following negotiations between each party’s solicitors but cases involving businesses are often very difficult to resolve.

Why is that ?   The main reason is the difficulty in agreeing how much the business is worth and how that value should be taken into account in an overall settlement.

An example of the difficulty is the case of H v H from 2008. The husband had a business and his expert valuer valued the business at £1.7 million; the wife’s expert valued it at £5.3 million.  !!

Courts prefer the parties to jointly appoint an expert and it is a difficult job to argue against the figure put on the business by the joint expert.

Once a valuation is agreed then what share of the business will a wife receive?  The starting point is equality but there are many situations that justify a departure from the starting point.

Take the case of Jones v Jones heard in the Court of Appeal in January this year.   Mr and Mrs Jones married in 1996.  At the time of the marriage Mr Jones had been the sole owner of a company for 10 years.  Mr and Mrs Jones separated in 2006.  Thereafter Mr Jones sold the company for £25 million.  Mrs Jones asked for £10 million.  She conceded that she should get less than 50% because Mr Jones already had the business when they married.  Mr Jones thought somewhere between £3 million and £5 million was reasonable.

The Judge at the original hearing awarded the wife the sum of £5.4 million.

Mrs Jones appealed to the Court of Appeal.

I do not know how many of you reading this article – if indeed anyone has done so – feel that £5.4 million was too high, too low, or just about right.  I give the Court of Appeal decision at the end of this article.  What is apparent however is the difficulty faced by a Judge in trying to do justice between the parties.  It follows that if Judges find it difficult so do, solicitors advising husbands and wives, and husbands and wives themselves will have their own thoughts.

Jones v Jones is interesting for the work done by the original Judge.  His judgment went into 484 paragraphs in arriving at the figure of £5.4 million.   Having done all that work he would have been dismayed when he discovered that the Appeal Court stated that his judgment was too long, too discursive and two unwieldy.

It is not therefore a straight forward job in sorting out a business.  The golden rules are (a) try and keep things amicable (b) see a specialist solicitor straight away and (c) try to agree a valuation if necessary by instructing one expert jointly and (d) try to negotiate a settlement.

For those with businesses who are considering the matrimonial journey then a pre-nuptial agreement would surely be sensible.

Late result

The Court of Appeal awarded Mrs Jones £8 million.

If you want to discuss any of these issues please contact Martin Astle, John Trubshaw, Paul Walters or Liam O’Shea of the Family Department on 01283 531366