What about the family business?

By 7 March 2012FAQ, Mediation

Family breakdown is often complicated, but can be more so when personal and business lives are entwined. So what do you do when you live together and work together in your own enterprise, and the marital partnership breaks down? In most cases the couple who decide to divorce or dissolve their civil partnership want to try to find a way to separate out their business lives too, but this isn’t always the case. We at CFLP aim to help clients achieve workable solutions for moving forward with their lives in the way they consider will be best for them and for the family as a whole. When family and business interests are interwoven, the choice of process for working out what happens next can be really important.

Despite the coming to prominence of forms of alternative (or ‘appropriate’) dispute resolution to help resolve issues arising from changes in family circumstances, many people still feel that their only, or best, option is to go to court. Where business interests are at stake, the court process provides a structured timetable for the gathering of information and a framework for its use as evidence. The core financial disclosure form, Form E, that both people have to fill in and swear to be true, will give a basic outline of what each person thinks is the valuation of the business and will also reveal salaries and other benefits. This is a good starting point in terms of information, but solicitors will usually want to investigate the business further, and will probably want to ask some questions about the figures shown.

The main decision that the solicitor will have to make is to assess whether the business’ value is in as an income stream, or if it has a capital value from which funds can be extracted to provide compensation for one person to leave the business. If it falls into the second category, the solicitor and client need to consider whether expert evidence is required to assess the value and the possibilities arising from it. This will usually mean the parties instructing an accountant or other financial expert to value the business and any assets it has on a joint expert basis, where that expert’s primary duty is to prepare neutral evidence to help the court make a decision if necessary. In highly complex or hotly contested cases, the court may agree that each side should be able to gather its own evidence, although this is rare.

The court process is structured and can all be done at arm’s length from the other party, negotiations being completed and arrangements being made through solicitors. However the court’s limited tools are blunt instruments in situations where people have built up a business together over many years, and this can be frustrating.

There are alternatives to court. The cheapest way of sorting out family disputes, other than doing it around the kitchen table, is to use mediation. This is where the two people involved meet in a neutral venue with an impartial third party and investigate options for agreement on a confidential, voluntary basis. In mediation, the process is flexible enough to allow scope for the two of you to decide how much evidence is needed about the business, and it is easier to find creative solutions that the court could or would not order of its own accord, such as agreeing a period of time where you will continue to work together in the business before separating out your interests. Both people should still take independent legal advice on proposed solutions and indeed some models of mediation allow solicitors to participate in the process, but the decision about what to do is firmly in your own hands.

Collaborative law is also a very useful and proven process where business and marriage/civil partnership issues are mixed. The process is a business-like negotiation in a series of meetings, where each of you is supported at the table by an expert legal advisor who can help you work out solutions. Unlike in most mediation models, it is possible to bring other professionals into the room for discussions too, therefore an IFA or accountant valuer can work directly with both the clients and the lawyers and be more involved in devising solutions than is possible in court proceedings, or in mediation. The other advantage of the collaborative process is that it can rebuild fractured lines of communication, and lay the foundations for long-lasting solutions tailored to individual circumstances. Business people may feel especially comfortable using it as the model is a bit like solving a business problem – and the outcome is often, where both spouses have had a historic integral role, that the two individuals will find a way of continuing to run the business together within agreed and defined boundaries

The main thing to remember is that you and your former spouse/partner have a choice about how to resolve the issues between you. If you’d like to talk about the different options open to you, please do give us a call.