The business of divorce and why preparation is key

“The majority of people don’t really plan well enough for the future,” said Teresa Davidson, family law partner at Irwin Mitchell. “We deal with financial situations where people haven’t really thought this will happen to them.

“Being in a firm like this where we have such a big and wide ranging business team, there is much more of a focus on acting for people with business interests.”

Qualified since the 1990s, Davidson focuses on family law, specialising in divorce and finance, as well as international cases as clients become ever more globalised.

High profile divorce cases have hit the headlines in recent years, with one of the largest settlements ever made in a UK court made this year – totalling £453m – and the divorce of Petra Ecclestone making the news due to her share of father Bernie’s fortune.

Businesses can be put at risk by far more personal matters, which is why Davidson urges business owners to plan carefully.

“It is best to be involved right at the beginning of the story,” said Davidson, “You have to untangle so much, particularly if a couple are in business together or family assets are involved.”

Irwin Mitchell largely deal with many manufacturing and service businesses, but many lucrative farming businesses and families are on the books as well.

“In terms of business structure, they tend to involve a lot of complexity. Different family members, sons, daughter in laws, are part of the family business. Sometimes there can be a lack of knowledge of who owns what.

“An up and coming entrepreneur who is doing really well, the business is flying – they don’t necessarily think that in 15 years’ time they might be sitting down talking about whether their current partner will get a share of the business they have built.”

Davidson continued: “As business owners, having to extract that money means implications for the business. How are they going to get it out of the business? Then it’s getting to the bottom of what the business is worth and other things which are massively disruptive for business.

“If you think about a family business especially, if you have one person in the business at the centre of a storm for a few years, financially and emotionally that is massively disruptive for staff and clients, people may not find it easy to juggle personal and business during acrimonious divorces.”

Davidson notes the high profile divorce of Asos founder Nick Robertson, forcing him to sell 1.3m shares through a placing with institutional investors last year to fund his £70m divorce settlement.

The judge was asked to decide how much Robertson’s ex-wife Janine should receive after they failed to come to an agreement on the division of shares and property owned by the entrepreneur, which took Asos from a £12m company when it floated on AIM in 2001, to a £3bn company today.

Stories like that of the former Asos chief executive are the stuff of nightmares for entrepreneurs and successful businesspeople alike, but it is not often that they think about the situation early enough to mitigate it.

“This is not going to happen to everyone,” said Davidson, “but on a more moderate level that happens to a lot of people, preparation in any event is therefore key.

“We need to discuss how they want to structure the business; when setting up home with someone, having a cohabitation agreement; how to manage finances, to think about having the right shareholder agreements for instance. Much of what we do centres around providing a sense of stability and knowledge for clients going through that situation when the relationship does break down.

“ In terms of planning, the main thing is getting people to think about prenuptial agreements. As advisors now we must be talking about at least the option of a prenup to all our clients but especially the entrepreneurial ones.

“People were sceptical about them in previous years, that they would even have an effect, but the law has moved on massively in the past five years.”

The case of German paper company heiress Katrin Radmacher in 2010 made that clear, after the UK Supreme Court ruled that the Husband should be bound by his prenuptial agreement, giving very strong guidance on how prenups should be viewed.

“It gave people reassurance, and meant that we can be a bit more definite that they will benefit from having a prenup in place,” Davidson said.

Another major change in recent years, said Davidson, has been the international aspect of business and families.

“People now have interests in more than one country. It used to be that it was in the majority people that operate in London who had international interests, it wasn’t as big in the regions, but now much more so. This will only continue to grow given the uncertainty surrounding the UK economy at present coupled with the increased attraction of doing business overseas. ”

“Whether it’s time spent working abroad, acquiring assets abroad or moving from abroad with assets still there or marrying someone from another country, it’s become an international thing. In the regions, it’s not on the scale of London but there is a ripple effect into places like Leeds, Sheffield and Manchester people have been attracted up here for work and the area and as it becomes more cosmopolitan, we see that more in the work we’re doing.”

“Another thing we see is people coming to challenge old divorce settlements. There has been a move away by Judges from very long-term maintenance agreements, courts are getting keener on telling people that they have to stand on their own two feet, rather than maintenance for life agreements.”

“We also see a rise in the number of older couples divorcing. People are willing to get divorced and start over again later in life; they are not as intimidated by that idea as they are in better health and financially well off in later life.”

Irwin Mitchell Private Wealth sponsored the first ever Women’s Lunch, hosted by TheBusinessDesk.com.