Dividing Company Assets on Divorce: Rolling in the Deep or Water under the Bridge?
Emilie Holland, family solicitor, reviews the approach, court orders available and top tips for parties when dealing with a divorce involving company assets.
As the ink dries on the ‘Amazon’ Bezos divorce settlement and sits awaiting court approval, this weekend brings the end to Rumour Has It with confirmation that, Adele Adkins and husband, Simon Konecki, have separated and speculation as to their financial split has already begun.
Whilst MacKenzie and Jeff Bezos’s business success was very much a joint venture and accumulated together, Adele’s suggested £145m and Simon’s suggested $20m wealth has been mostly as a result of their own business ventures, a vast amount of which having been generated pre-marriage.
A business, in which one of the parties on divorce has an interest, is a financial resource which the court takes into account when determining a fair financial outcome. Whilst it may be assumed that Adele will want to retain her interests in her 3 performing arts companies and Simon in Life Water UK, and Drop4Drop Ltd, without a pre-nuptial agreement, assets generated solely by one spouse will not be ring-fenced or excluded. Either of them could seek to secure an interest in the others company assets, post divorce.
Assuming Adele and Simon, or any couple for that matter with businesses, divorce in the UK, and their companies are considered matrimonial property, how will their company assets be treated?
1. Company assets will generally be considered by the family courts as part of the divorce when they are part of the assets of a marriage. Even where the companies concerned are their own corporate entity, the court will consider its ability to ‘pierce the corporate veil’ to bring the assets into the jurisdiction of the family court;
2. The family court will need to be provided with details of the company’s accounts and values and income generating potential before being in a position to determine what the outcome should be;
3. The family court will also need a full account of what other matrimonial assets there are in order to consider the company’s value/ability to produce income in the context of the marital assets as a whole;
4. The family court will also need to take into account interests of other parties involved in the company assets; and
5. The family court will need to consider all s25 factors in the Matrimonial Causes Act 1973 when determining what it considers the overall divide should be;
Number 2 on the list above isn’t always as straight forward as you would hope and often requires the most attention in divorce matters involving company assets. Often parties know their company finances inside and out and this helps tremendously, but where parties are reliant upon company accountants or where businesses are heavily managed by one party only, it is essential the other party and representatives are able gain the same level of understanding as what a Judge would need to determine the issue.
Parties will need to consider:-
1. Undertaking a full analysis of the business accounts- getting to grips with the figures is essential and so it is advisable to arrange for either the company accountant or your own accountant to review and explain the same to you.
2. Gaining an understanding of the structure of the company- understanding how the company was formed and operates legally, and with how many others and in what shares, will set out the complexity and process as to how interests can be acquired, or disposed of between spouses.
3. The appropriateness of obtaining a company valuation- Calculating a person’s interest in a company in cash terms or predicting revenue returns or evaluating the liquidity of the funds can be a complex task and so, it may be appropriate to instruct an expert. Such reports can be costly and so, advice should be taken in each case.
4. The tax implications-If a party is to dispose of their shareholding as part of their overall settlement, the tax implications of such a disposal and any such applicable reliefs should not be overlooked. Advice and guidance should always be sought from an accountant.
Once the court is satisfied as to the financial position, the court has the power to order any of the following:-
1. Sale of part or whole of a party’s shareholding-although unlikely in small shareholdings and extremely rare if they are the sole or majority shareholder as a family business will often be the source of the parties’ wealth and a sale would potentially bring an end to future income;
2. Transfer of part or whole of a party’s shareholding, (subject to third party shareholders views and any restrictions contained within the articles of association)-either in situations where the parties are co-shareholders, from both into one party’s sole name; or, where one party’s sole shareholding in a company is shared between the parties;
3. One party to pay a lump sum to the other party, in exchange for the retention of their existing shareholding in the company concerned or by way of payment in order to gain their spouses shareholding in addition to their own.
The appropriateness of which, if any, of the orders above, will be determined by the court by the facts and circumstances of the case; or and as seems to be the case with Mr and Mrs Bezos, in accordance with parties negotiations and agreement. And legal advice should always be sought.
It’s anyone’s guess as to what path Adele and Simon will take and ultimately, what will happen to their interests in their companies. The profile raising of Simon’s work could propel his company to higher heights and if Adele’s history is anything to go by, another post-break up, award winning and chart topping album could be on its way. Only time will tell what will ultimately be their Remedy.