A law firm for life

How many business owners consider the state of their home life, and indeed their marriage when restructuring their business? I would imagine very few!

Why is it important to do this? To answer that question is not so straight forward. Corporate transactions by business owners may have family law considerations not apparent at the time. When considering restructuring your business, you should consider not only the impact this will have on your business, such as the tax implications etc, but you should also consider your family relationships. What many people fail to recognise, or consider fully, is timing and the consequences of changing a business entity at particular points in your life, for example after marriage. Here is some food for thought.

What can happen if a business entity is changed after marriage?

To answer this question, consider this scenario – an entrepreneur has a business and is trading as a sole trader, and the sole trader decides to get married. The entrepreneur will generally not consider the business as matrimonial property, and neither will the Courts in Scotland unless something changes that presumption. Assets owned by either party prior to the marriage will not be considered matrimonial property.

Say the business continues for a few years and then the sole trader decides to change the legal entity of the business (e.g. incorporates a limited company either because of business growth or for tax reasons or for some other reason).

The effect of this change in the business entity post marriage could mean that the business is now considered matrimonial property. Consequently, this could potentially result in the spouse of the entrepreneur acquiring entitlement to a share in the business from the time of the change of business entity, unless appropriate steps have been taken in advance to displace that consequence.

The reason this happens in the case of an incorporated company is that the company is treated as a new separate entity created during the marriage and as such can fall into the pot of matrimonial property.

The problem for the entrepreneur arises if the marriage subsequently breaks down. The entrepreneur is faced with having to fund buying back the share of the business in the divorce from their spouse.

Planning for your future

The cautionary word here is that detailed and informed advice should be taken before restructuring your business, given the potential consequences further down the line, should your marriage come to an end or circumstances in your personal life change.

Help to future-proof your assets is available, and we would encourage you in these times to plan for the future and for any potential pitfalls. In light of this, you should also be considering what will happen upon death.

You may read in the press nowadays reference to “business Wills”. What is a “business Will”? Simplistically, it is a specific clause in your Will bequeathing your interest in your business to the person who will inherit your interest on your death. There is, however, nothing simple or trivial about the ultimate destination of your business. The questions which need to be considered are:

It would surprise you how many business people do not have a Will. You may think you are too busy to plan for your future, or worse, you think that you do not need to make provision – but as we have seen you do so at your own peril.

Contact The McKinstry Company in Ayrshire & Dumfries and Galloway Today

If you are considering restructuring your business, or even if you are not but we have struck a chord about making provision for your future, contact us today. We have broad experience in advising on a wide range of issues, including family law, business law and Wills and estate administration and have assisted our clients in protecting themselves when things do not run in the direction they might have hoped Call us today on 01292 281711 or complete our online contact form.

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