People have lots of reasons for bringing their husband or wife into their business, most commonly because of the opportunity this presents to maximise tax advantages.
Unfortunately, many people don’t realise that if their marriage later breaks down, there could be far-reaching and potentially costly implications.
As family lawyers, we routinely advise clients on what they can do to significantly mitigate any potential negative impacts when bringing their spouse into their business.
Whether the business is set up as a Partnership or a Limited Company, some of the things we ask clients to consider are:
- Are you ceding control of the business?
- Can this cause issues with the day to day running of it, with potential deadlock for decision making purposes?
- How easily (and quickly) could you or your spouse dissolve the business, against the other’s wishes? Partnerships at will (where there is no partnership agreement), for example, can be dissolved without the need for any formality.
- Can your spouse potentially prevent a desired sale of the business or your share in it?
- Are you giving away a share of your entitlement to assets or value within the business?
- Is your spouse’s ability to unilaterally withdraw income and or capital potentially unrestricted?
- If you are restructuring the business when bringing your spouse in, are you converting what was pre-marriage wealth (and therefore out of the pot for sharing on divorce) into matrimonial property which your spouse can then claim to share in?
- Can you recover your spouse’s share in the business at all; and if so, how easily and on what terms?
If you’re looking to involve or include your spouse in your business while still avoiding potentially adverse consequences if the marriage later falls into difficulty, you do have a number of options available to consider.
Family lawyers regularly work with business and corporate advisers to put the most suitable arrangements in place for their clients; these might include pre or post-nuptial agreements, shareholders’ agreements, partnership agreements and appropriate share structuring arrangements.
Sometimes the best route for a client is via a combination of the above strategies
In conclusion, the key thing is to ensure that you take proper professional advice before you make any changes to your business in terms of bringing a spouse or partner in. Or, if you’ve already gone beyond that point, make sure you seek that legal support and advice as soon as possible and before things start to go wrong.
