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Divorce for Directors - What are the Implications?

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Divorce is never a simple process. Financial negotiations can be time-consuming and difficult, particularly if business interests form part of a couple’s wealth. Certain problems are particularly relevant to company directors, particularly those who are ‘equity directors’ with a controlling or substantial shareholding, but ‘employee directors’, who are effectively senior employees of a company, may also face additional obstacles.

General Principles
First, there are some general principles the courts will apply no matter what:

  • The behaviour of either party (unless extremely reprehensible) is not normally relevant to the settlement. Divorce is not about blame, it is about negotiating a deal;
  • The first priority of the court is the welfare of any children; and
  • Unless you have a pre-nuptial or post-nuptial agreement (and the former are only persuasive, not binding), the court will start from the premise that ‘matrimonial assets’ (built up during the marriage) should be divided equally.

Employee Directors
The position of an employee director on divorce is essentially the same as any employee. However, directors often have more complicated remuneration schemes involving benefits in kind, performance-related bonuses and significant pension schemes, which makes calculating appropriate remuneration as continuing income and maintenance payments problematic.

One common area of dispute is when one person in the couple has given up a promising career (perhaps to care for children or to support their spouse in furthering their career). This has resulted in some of the largest divorce settlements in the history of the UK courts.

One other difficult area is future income in the form of bonuses or pensions. Normally, the courts do not look too far ahead when determining the value of likely but unearned income, but recently in a case where a husband did not reveal that he was expecting a substantial increase in income, the court revised his ex-wife’s maintenance payments. It’s also common to allow an ex-wife a proportion of her ex-husband’s pension income when he retires.

Trusts or Inheritance Tax plans also have to be rethought. Any overseas properties which the couple owns create additional complexities.

Equity Directors
For equity directors, there are questions of business value and, if both spouses are shareholders and/or are remunerated by the company, further practical difficulties arise.

Issues to consider include:

  • What is the value of the company?
  • Does the value of the company depend on a particular individual?
  • What is the value of a particular shareholding (particularly if it is a minority shareholding)?
  • How are the business assets (e.g. property) owned?
  • Can both parties continue to work together in the business?
  • What are the tax issues (for example, transfers of assets out of the company, sales of shares)?
  • Can the necessary non-compete clauses and employment law issues be dealt with?
  • Will the proposals cause problems over guarantees with the bank?

Divorce is hardly ever straightforward, particularly where there are assets in the family worth arguing about. It is definitely true to say ‘you get what you negotiate, not what you deserve’ which is why it’s important to have a good solicitor on your side!

We are more than happy to talk through your initial queries without charge and we always offer a free initial meeting, no strings attached. Give us a call either to set up a meeting or to chat through your questions and concerns – 01202 499255.

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