The impact of divorce on companies of course depends on the holding of the owner going through divorce proceedings. The Corporate veil has been pierced.

Step to Protect your Company Shareholding

Companies should take stock from the lessons taught by landmark divorce proceedings like the recent case of Hamm v Hamm in the US or UK’s very own Supreme Court ruling on the matter last year in Prest v Petrodel (see Part 1 of this Article).

Companies are no longer protected by the concept of companies having a separate legal personality to its owners and therefore not subject to liability in divorce proceedings. Companies should consider the following to ensure that business shares and assets are kept out of the divorce wrangle of any shareholding director:

1. Shareholding agreement – a shareholding agreement is a confidential agreement drawn by shareholders that seeks to protect the interests of respective owners. A stipulation in a shareholding agreement that upon divorce the ex-wives will not be entitled to shares in the company will provide a sound argument against a claim by a spouse in divorce proceedings.

2. Pre-nuptial Agreements – although not legally binding in the UK at the moment, pre-nuptial agreements are good indicators of the intention of parties from the outset and the courts usually hold parties to them, but one has to ensure that they are carefully drafted so that they can be enforced in the courts.

3. Mixed Board of Shareholding Directors – its important to have more external shareholders than family, the more the mix the less likely the courts will look to disrupt the business impacting upon other shareholders by transferring shares to spouses and ordering sale of shares;

4. Separating spouse from business – involving spouses in businesses can have their income tax relief benefits by commissioning them as directors or company secretary, but this is not advisable in the long run as in the event of a divorce, spouses can claim a great deal more due to the contribution in the growth of the company.

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