01 October 2015

Former spouses and your business — can your past affect your future?


Claire Blakemore

Partner | UK

You've been working hard on your business for years and finally you've signed a deal that you have been dreaming about since you set up your business with your friends from university. So what's the problem? Answer: your ex-spouse. It turns out he has heard about your good news from mutual friends and he is now looking for a share of your fortune. How could this happen – you divorced over 5 years ago? Surely, he can't now come back for more? However, the answer is yes unless you got a 'clean break' order from an English Court dismissing all financial claims.

So how do you avoid your ex-spouse reappearing once your business is doing well and life is good? Here are some tips:

  • The most effective way is not to marry but for many this is not an attractive option. When it comes to dealing with financial obligations following a breakdown of a relationship there is a vast difference between being married and not being married. There is no such thing as 'common law spouse' so unless you walk down the aisle you have no financial obligations to your former partner arising on the breakdown of your relationship. If you have children together you will have an obligation to support them, and disputes can arise about ownership or interests in assets, but neither party has any right to make a financial claim against the other party arising simply because of cohabitation. Married couples, however, have full financial obligations to each other.
  • If you wish to marry, take advice on whether to have a prenuptial agreement. Although they are not legally binding agreements, they can be highly influential and could determine the outcome of a case. If all the procedural requirements have been met, the starting position is that each party is treated as having intended to be bound by the terms of the prenup and so it is for the party seeking to challenge it to show that the terms are unfair. The Law Commission has also recommended that legally binding agreements known as 'Qualifying Nuptial Agreements' are introduced. If you are already married consider having a postnup.
  • Ensure that all financial claims on divorce have been dismissed. It is possible to have a divorce without the financial claims having been resolved. The consequences are that financial claims can be made after the divorce is finalised. In Vince v Wyatt the Supreme Court allowed an ex-wife to make a claim 23 years after she divorced her husband and after he had built up a very successful eco-electricity business.
  • When dealing with financial claims on divorce try to obtain a full 'clean break' of all current and future financial claims to prevent any future claims being made. If you are paying spousal maintenance because a full clean break is not possible, take advice on whether a 'term' maintenance order can be obtained which limits how long maintenance is to be paid as that might reduce your exposure to future financial claims.
  • Also, if you are paying spousal maintenance take advice on whether you should seek to 'capitalise' it to pay off the spousal maintenance award long before your business booms. Timing is important because you will need enough capital to fund a lump sum payment but you will also be required to give updating financial disclosure including about your business.
  • In England it is possible to make financial claims following a foreign divorce. This means that if you are divorced in say, the US, it might be possible for your ex-spouse to make a second financial claim here. This gives the English Court power to make a wide range of financial orders. Where a divorce is taking place overseas take advice in England on obtaining a dismissal of English claims or having a postnuptial agreement dealing with such claims. 

So, if you are getting a divorce and hoping for a brighter future for your business and your personal life, whilst it is important to look forward, do not ignore your past. 

Category: Article