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To have and to hold: Your company shares … even after the divorce

Date:28 NOV 2014
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Head of Family Law

As oil tycoon Harold Hamm is ordered to pay close to $1 billion to his wife, making it one of the richest divorce settlements in history, experts from MLP Law advise on five things all business owners should do to protect their companies and employees from the potentially devastating effects of divorce settlements.

To have to to hold: Your company shares … even after the divorce
It pays to insulate your business from divorce proceedings

Theo Hoppen, head of family law at  MLP Law, explains that you don’t have to be worth $18 billion like Harold and Sue Ann Hamm to take steps to ensure your business survives the break-up of your marriage:

'A shareholding in a business would, in normal circumstances, be treated as part of the pot of joint property held by a married couple and therefore one of the things that needs to be counted in the fair distribution of assets upon divorce.

However, unlike a house or bank account, the division of a shareholding can have important legal implications not just for the couple but for other directors, shareholders and employees.

In the Hamm’s case, dividing up a 68% shareholding of a major oil company could lead to major disruption in business and will already be causing unwanted instability and uncertainty among staff, suppliers, investors and anyone else with an interest in the organisation’s smooth running.

Preparing for divorce is therefore a sensible and pragmatic step for business owners to take. It is about good governance, not about trying to squirrel assets away from your partner’s legal team.'
Theo recommends considering 5 steps to insulate your business from divorce proceedings:
  1. Consider entering into a pre- or post-nuptial agreement with your spouse. These agreements can protect your shareholding in the event of a divorce. It is crucial that you obtain specialist legal advice to ensure that the agreement is upheld by the court on divorce.
  2. Consider entering into a shareholders’ agreement. This is a confidential contract between the shareholders of a company that provides additional protection around share ownership. It can provide that on divorce a shareholder’s spouse is not entitled to receive any shares in the company. 
  3. Do not mix your business assets with your private assets. Keeping the business separate from your private wealth can help on divorce.
  4. Consider whether you want to involve your spouse in the business for tax purposes. While this enables to you utilise tax reliefs, your spouse’s involvement in the business may strengthen his or her claim on divorce.
  5. It can help if you share ownership of the business with outsiders. If there are non-family shareholders then the court is less likely to take steps that would damage the livelihoods of the other shareholders, eg order a sale of the business or the transfer of shares to your spouse.
For more information, please visit www.mlplaw.co.uk/