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Divorce and business: Can the two ever sit together?

Written by Alex Davies, Victoria Symons on Tuesday, 22 June 2021. Posted in Insight, Commercial law, Analysis, Legal

While the recent announcement of Bill and Melinda Gates’ divorce may not have come as a surprise, many have raised eyebrows about their commitment to continue to work together to promote their Foundation

Divorce and business: Can the two ever sit together?

While the recent announcement of Bill and Melinda Gates’ divorce may not have come as a surprise, many have raised eyebrows about their commitment to continue to work together to promote their Foundation, which was set up in 2000 with an endowment of almost $50m.

Bill and Melinda seem to have agreed the terms of their divorce before announcing it to the world. That cannot have been an easy process. So, how did they do it?

For many, the concept of continuing any form of business relationship after a separation seems inconceivable but in truth it’s not as uncommon as you’d think. While a contentious court fight makes headlines, ‘amicable’ divorces are in fact far more common, with the individuals concerned agreeing the terms of their separation outside the public domain. 

So what do you do when your family interests and business interests are intermingled? The answer will depend very much on the business and the people involved but there are some common themes. In the short term:

Check the shareholdings: are any shares jointly held, and if so, how (if at all) should these be divided? Does each individual have an equal interest in the business? If it’s deadlocked, how will business disagreements be resolved? It’s important to consider these questions in light of the company’s articles of association and any shareholder agreement, which may place restrictions on the ability to transfer shares.

Management: this all comes down to governance. If both individuals are directors, how will they deal with day to day business disputes? An obvious answer is to rely on a third director to carry a casting vote, but that places a huge responsibility on that individual and risks embroiling them in a personal argument. Would it be better for one or both individuals to come off the board and leave others to run the business in the short term to give time for the separation to settle? If only one spouse sits on the board, consider what steps can be taken to give comfort to the other that the business is being run responsibly, perhaps through enhanced information rights or the right to attend board meetings as an observer.

Third parties: a divorce affects far more than those immediately involved. It’s important to proactively manage communication with employees, customers and the supply chain to ensure confidence in the business is maintained. 

If you are in the public eye, careful attention needs to be paid to PR comms and that will require lawyers and PR teams working together. 

In the medium term, it’s essential to ensure that expectations are aligned: are the individuals in for the long haul, perhaps to leave a legacy for the next generation, or is their mutual interest shares only to maximize value with a view to a sale?

And what can you do to avoid all your good business intentions being unwound by a messy and costly divorce that ruins your relationship? 

Firstly, consider signing a prenuptial or postnuptial agreement. Whilst they are not automatically binding if you divorce, courts place increasing weight on their terms and judges will uphold them if they are fair and were properly entered to. 

Secondly, if the worst happens and the marriage ends, one of the most important things is to choose your lawyers carefully. You each need solicitors that you trust and who can work well together in a constructive way to achieve a financial settlement that enables you both to work together in the future.

Lastly, consider alternatives to resolving disputes without ending up in court, as you will not be immune from disagreements. Mediation, collaborative dispute resolution and the various types of private arbitration all provide opportunities for conflict to be resolved quickly and in a dignified way without getting bogged down in the trench warfare of litigation. 

In discussing the above, it’s important to focus on interests that are aligned: maximizing the value of the business, and creating a nest egg either for retirement or for children. 

And these types of discussions should not be limited to couples going through difficulties. All businesses where couples are involved benefit from a debate around these issues long before they have the potential to arise. 

Consider building protections into the company’s article which would restrict the ability for a court to order the transfer of shares to a divorcing spouse, and encourage open discussion around pre- and post-nuptial agreements as to how to assets would be divided in the event a couple separates. 

Mixing personal relationships with business can often feel like walking on eggshells and getting the right professional advice on board to help guide you through the overlapping issues will pay dividends in the long run. 

About the Author

Alex Davies

Alex Davies

Alex Davies, partner and head of the family team at law firm Cripps Pemberton Greenish. He deals with financial settlements following divorce or separation, particularly involving substantial assets, trusts or businesses as well as nuptial agreements and complex disputes regarding children.
Victoria Symons

Victoria Symons

Victoria Symons, partner at law firm Cripps Pemberton Greenish. With 20 years' experience as corporate lawyer, her practice now focuses primarily on private wealth advising high-net-worth individuals and families on all their corporate and other needs.

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