Businesses on Divorce: Getting Divorced When You Work With Your Husband or Wife

If you work at your spouse's company, you may be considered an employee, and you may have employment rights.

It is important to remember that employee status and employment law rights apply to spouses employed in a family business, regardless of any breakdown in the marriage.

If your ex-spouse's business has employed you for at least two years, you may have acquired the right not to be unfairly dismissed.

Additionally, if you feel that you have been forced to resign from the business because of the divorce, you may have a constructive dismissal claim.

This means your spouse cannot "fire" you just because you are considering a divorce.

If you are on the payroll of your spouse's company, it is important to take legal advice at an early stage.

Although you may agree to depart from the company on divorce, careful consideration needs to be given to your employment position in the interim period pending a final divorce order being made to ensure your income stream can be suitably protected.

All directors of limited companies in England and Wales have certain duties and responsibilities that must be complied with under the Companies Act 2006.

Directors have a duty to promote the company's success and act in the company's interests.

Therefore, if you are appointed as a director of your spouse's company but have no active role in the same, it is important to take early legal advice when separating to ensure you are not at risk and are complying with your legal duties and responsibilities.

Equally, suppose you have not been involved in the company's day-to-day running.

In that case, company decisions may have been made without your consent, particularly if no other directors are within the business.

Certain company decisions may need to be reviewed to consider if they have been properly made.

Certain protections will also need to be considered on divorce to protect you against any liability which may arise from decisions made which you have not been actively involved with.

Companies are governed by their articles of association and provisions under the Companies Act 2006.

If the company has bespoke articles of association, then these will need to be carefully reviewed to consider the provisions as to how any shares can be transferred or sold.

If you have not been actively involved in the company's running, then it may be agreed that it is sensible for you to step away from the company to not interfere with its operations moving forwards on divorce.

It may be agreed that you will remain a company shareholder but without voting rights.

If you have been involved in the running of the business, then it may be agreed you should remain a shareholder.

Tax consideration also must be given to any intended transfer or sale of shares on divorce.

Whether it is appropriate to remain a Shareholder in your spouse's business depends on the case's circumstances.

If you are to remain in business after divorce, there are inherent risks to your future in the company that may never have been considered during the marriage.

In some cases, the husband or the wife may be concerned about their ability to secure sufficiently lucrative employment elsewhere, such as if they have been working in the family business for many years with little experience outside of the company.

Equally, you may be close to retirement and not wishing to change the status quo.

You may consider your separation to be amicable and consider that you can continue an effective professional relationship together.

If circumstances arise such that you will remain in business together, ensuring that your role in the business is sufficiently protected on divorce is paramount.

It may be that the company articles of association need to be amended, and consideration will need to be given as to whether you should enter into a new or amended shareholders agreement.

For example, you must agree on issues such as when shares can be transferred or issued, how a director can be terminated, and how new directors can be appointed.

If you are equal shareholders and directors, it is important to try and protect against a risk of deadlock in decision-making, where decisions will require both of you to agree.

The likelihood of reaching a deadlock on decision-making will likely increase after divorce, where you may have more conflicting objectives.

Therefore, consideration needs to be given to how decision-making will be handled so it does not jeopardise the success and effective running of the business moving forward.

If you are co-directors of the company, you must ensure that your entitlement to pay, benefits and holidays are protected more formally than may have been necessary during the marriage, such as by entering into director's service contracts setting out your entitlement.