It is not an uncommon scenario – a couple separate, their marriage is over, yet they are still both involved in the same business. What happens next?
Continuing the business relationship
Some separating couples want to continue their business involvement despite the breakdown of their marriage. How straightforward that will be depends on a number of factors, including the willingness of the couple to communicate with each other and whether the structure and nature of the business make this a desirable and realistic option.
While Scots law favours a 'clean break' approach to the division of matrimonial property post-separation and before divorce, there is no reason why, if both parties agree, business relationships and roles can't continue.
In such situations, using alternative dispute resolution methods such as collaboration or mediation can really help to clarify the way forward. It keeps both parties in control of the decision-making, and if all goes well, they avoid having to go to court.
Dealing with the nuances of a business
No two businesses are the same, so there are many factors to consider in a separation – and questions too:
- What if one of us wants to step down to a more junior role?
- How does the separation affect shares and our shareholders?
- How will it impact others in the business – employees, other owners?
- What if we both want to take ownership of parts of the business but don't want to run it together – can it be split?
There is no 'one-size-fits-all' answer to these questions, and this is where I would usually suggest involving employment law and corporate law colleagues, who can advise on the implications that such issues or changes are likely to have on the running of a business. It may also be appropriate for one or both parties to take independent financial advice.
Ending the business relationship
In my experience, the more common scenario is that separating couples want to end their business relationship at the same time as ending their marriage.
If each person can agree on how this should happen, their lawyers will draft a Minute of Agreement (otherwise known as a 'Separation Agreement'). One or more of the clauses in that agreement will detail what happens to the business interests of each party; for example, where one spouse sells their shares back to the company via a 'share buyback'. Again, the Minute of Agreement – and any associated papers - would typically involve input from family lawyers, as well as corporate and/or employment lawyers to ensure a smooth changeover where all components of the business are accounted for.
In instances where a separating couple can't agree arrangements for the business, those decisions can be made by an arbitrator (arbitration being a form of alternative dispute resolution) or a sheriff (where one spouse has raised a court action against the other). The risk with this approach is that one - or neither - party achieves what they are looking for. This is the primary reason why negotiating a resolution is always preferable to having a third party decide the outcome.
A new chapter
Irrespective of what each person is looking to achieve post-separation, the most important thing is for both to be fully informed, at an early stage, on the available options and the legal and financial repercussions of those choices for them, and for the business. There are many factors to consider but the good news is, it is possible to resolve complex situations swiftly and amicably - and, in doing so, achieve the best possible outcome for everyone involved, including the business.
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