Institute of Directors Magazine, Spring 2010
Wendy Hopkins Family Law Practice is one of the best known “divorce businesses” in Wales. It was set up in 1996 with the former family law department of Eversheds. When it first started, there were just 3 lawyers and now there are 14 lawyers, 12 specialising in family law and 2 in Wills and Probate.
It has one of the largest teams of divorce lawyers in the country. Most of its lawyers are accredited specialists and are committed to resolving matters amicably for clients. The Firm also boasts one of the few Collaborative Lawyers in Wales (Thea Hughes) and a founding member of STEP. The firm is top ranked in the legal independent research publications, namely, Chambers & Partners and the Legal 500.
One of the effects of the “credit crunch” has been an increase in the number of divorces and business divorces. The senior lawyers and partners here deal with these “business divorces” – i.e. divorces involving a business which is run by a husband and wife team.
The lawyers first look to see what type of business module it is – e.g a Sole Trader or Partnership or a limited company. This is where the experience from Eversheds comes in very handy. The firm has a very commercial approach and there are many aspects to consider including the following:-
- The shareholders and the percentage shareholders
- Who are the Directors and Secretary?
- Are there employment contracts for the Directors?
Are there company pension schemes?
- If it is a partnership – is there a Partnership Deed?
Whatever has happened between the Husband and Wife, it is absolutely essential that they continue to co-operate with one another regarding the interim running of the business to preserve the business for the future – no matter who is going to end up with the business.
Aspects to consider during the interim running of the business can include the following:-
- The defined roles of the Husband and Wife in a business
- Who can sign cheques?
- The retention of the status quo
- What do the Articles of Association say?
- Is there a Shareholders Agreement?
- Is there a Partnership Agreement and what does it say?
To work out what each person will have from the divorce then often businesses need to be valued by a joint independent external accountant. The joint independent external accountant owes a duty to the court and not to either party. There are various methods of valuing the business and the accountant can advise on the most appropriate method. The accountant can also advise on the tax implications – Capital Gains Tax can be a major feature. If a business is to be transferred from a Husband to a Wife to avoid Capital Gains Tax then it is important that the transfer takes place before the end of the tax year of separation.
Once the value of the business is known then we can look at the liquidity and whether there is enough money in the Company to purchase an exiting spouse’s share now or whether it has to be purchased over a number of years or whether the shareholding or partnership will need to continue if there is no liquidity. Over the years, we have acted for all sorts of businesses in all sorts of situations. It is still rare and the exception for a Husband and Wife team to continue running a business after divorce.
As part of our job we try to get to the grass roots of the business and understand exactly how it started and how it is operated and how it has got to where it is today.
In all instances we provide innovative and bespoke solutions to complex problems with a firm but fair approach. Wherever possible we try to resolve matters amicably and avoid litigation. It is far better for the clients to reach an amicable negotiated settlement than an order imposed on them by a Judge in a court after expensive, lengthy and stressful litigation.