Being in business with a partner or spouse, or bringing a spouse into a wider family business is a common case for many couples.
One or both partners may be actively involved in the running of the business or own a share or hold some position within their partner’s company. This is often done for tax reasons. A partner may also work as an employee, again for tax purposes.
There are many benefits to working with a partner or spouse, but there is also an increased risk of the business suffering if the relationship fails. If a couple decide to separate, business decisions can become costly and/or cause a real practical headache. This can also cause stress and uncertainty for anyone else who is involved in the business.
Here are some of the benefits and risks of starting or entering a business with a spouse or partner:
- Scottish Law casts something of a safety net around assets owned prior to marriage, gifted assets and inherited assets. This includes business interests. However, if a company is restructured during the marriage, this may cause the safety net to fall away and expose the business owning spouse to a substantial claim on the value of that business in the event of divorce. The situation will be even more difficult if the restructure involves passing ownership of company shares or a partnership interest to the spouse.
- If a spouse or partner has been brought in as a business partner or shareholder then they will remain so following a separation. Without their cooperation it can be difficult, or impossible, to change that, at least in the short to medium term. As a shareholder they would have a right to continue to receive dividends, which can cause cash flow problems and shift the negotiating dynamics.
- A spouse may be appointed as a company director, company secretary or as an employee, even if they are not actively involved in the business. In this case, the fact the couple have separated does not give reasoning to terminate one partner’s employment. This could give rise to a compensation claim against the business.
So what can be done to prevent this situation arising?
Before any decisions are made on bringing a spouse into a business or making changes to an existing one, it is important that you consider the risks explained above. You may want to consider writing up an agreement so that both partners understand what is to happen and give certainty for the future.