The proposed changes may include providing a mathematical formula for couples to calculate how much each partner should receive and the exclusion of homes and assets – which could include business assets – from settlements if they were inherited or acquired before the marriage.
So how will this affect business owners? The first point is that, if you already reached a settlement regarding capital and assets on splitting with your spouse, the case cannot be reopened unless it can be proved that you misrepresented or didn’t disclose significant information.
Achieving a final clean break settlement with no maintenance award really is final, with no possibility of review – and that is also unlikely to change. Similarly, there will still be several options regarding the terms of the settlement, for example agreeing share or pension allocations in lieu of a maintenance award.
That said, regardless of whether the law is updated to ring-fence pre-acquired assets, no one should ever assume that this situation could not be open to challenge. It will depend on individual circumstances. However, there are steps that you can take now to help provide a certain level of protection and define each party’s rights.
If the business was established during your marriage then you could consider a shareholder agreement or form a discretionary trust. Careful thought should be given before employing a spouse or partner and similar care before transferring any shares into their name. If a business was established prior to the marriage, then a prenuptial agreement or pre-civil partnership agreement should fit the bill.
Recent developments in the law have given greater acceptance to these agreements and the position will continue to be strengthened by the Law Commission.
At the moment, family law judges in England and Wales have a great deal of discretion and that can be a double edged sword, potentially adding to the cost of a case because legal advisors can’t easily predict what judges may say regarding the division of assets – especially for business owners whose financial position is usually more complex.
In addition, judges in different parts of the country are not always consistent with each other about what constitutes a fair settlement.
The idea of a formula for working out financial settlements is already the norm in personal injury cases. There is also a parallel with child maintenance costs where settlement for each child is calculated on a percentage of earnings. However, the often-unique financial circumstances of a small business do not lend themselves easily to a formula so it would be wise to take further precautions, regardless of the outcomes of the review.
The law is unlikely to be updated for several years – the next step is a Law Commission report to ministers in 2013. Don’t sit on your hands in the meantime: you may believe that both your business and your marriage are built on strong foundations – in which case long may that continue. But doing nothing could leave you vulnerable at the point of a split if your crystal ball turns out to be cloudier than you thought.