The time to plan for a fair division of marital spoils is when everybody is still talking to each other.
Where both partners are shareholders working in the business, consider drawing up a shareholder agreement. This can take the heat out of a later divorce and answer some key questions while there is no dispute. Would you both stay within the business and in what capacity? Or would one of you sell your shares, and if so, how would you value their shares?”
The shareholder agreement doesn't give absolute protection – divorce courts have sweeping powers. If the judge felt the agreement was unfair, he might redress any inequalities when divvying up other marital assets.
Matters are complicated if your non-working spouse – or any family member – holds shares in the business. Entrepreneurs often grant their partner, say, 10% of the shares, but this gives them a certain nuisance value. It might be hard to get a clean break if your former spouse has a stake in the business but refuses to sell. More sensible entrepreneurs would make sure their non-working spouse has no voting rights.
Another problem is actually getting money out of the business to pay off your spouse. You could take the money as income or dividends, but could face a hefty income tax bill. Loans are generally prohibited under the Companies Act. The sensible option is to build wealth outside the business, giving you spare cash to fund a matrimonial settlement.
You should also be honest with your partner about the state of the business. Some entrepreneurs give the impression that their business is much more successful than it really is, or has much lower borrowings. Spouses are rightly sceptical when they are suddenly told it is struggling, and this can lead to nasty disputes.
One common sticking point is how to value the business – two valuers can give wildly different figures (and you pay two sets of fees). Agree which valuer to use in advance.
If you split from your partner, always fully disclose your finances, the courts don't like being lied to.
Still want to get married?
Some might suggest that it is better not to get married at all. Indeed it is true that unmarried couples aren't covered by family law and have little legal protection. Also, contrary to popular impression, there is no such thing as a common law wife. Your partner could claim a share of your wealth on behalf of any children, but not for themselves. They can claim equal share of any assets held in joint names – such as a home you bought altogether – even if their contribution was much smaller. But cohabitation in itself confers no rights.