Relationship disputes involving Court action often lead to problems associated with tracing financial assets related to business. David Underwood discusses how careful planning can mitigate these problems, helping to avoid unnecessary difficulties and anxiety
I am writing about planning for the family you have, not about the family you may be planning to have. There is a major difference.A lot of my professional work relates to the valuation of small business entities. These are done for Family Court or High Court disputes and are often because of matrimonial or relationship problems.
The law changed some years ago so that there is now a clearer description of what qualifies as relationship property. They are the assets which have to be valued and divided between the parties. There can be considerable problems involved in tracing the history of particular assets to determine whether or not they qualify as relationship property.
That is generally a matter for the lawyers to resolve. Accountants can be involved in tracing financial assets such as particular legacies. It can all become an expensive exercise as the lawyers seek to get fair treatment for their clients. That is where the family planning benefits or deficiencies show up.
A lot of these problems can be avoided with proper planning and this can be done without prejudicing the claim by one or other party. There may be an agreement entered into before marriage or there may be family trusts set up to hold specific assets.
In this way the forced sale of special assets may be able to be avoided. That can be of major benefit and can avoid extra unnecessary stress at a very stressfull time.
I refer in particular to the protection of assets which may have been in one family for two or three generations. If you have a family business or family farm that that has been in the family for a long time, you would not want to see it subject to a forced sale because of a matrimonial break up.
The same concerns would apply if it was a business you had started and built up with the aim of keeping it in the family.
What you have to do with this type of family planning is to try to work out the worst possible outcome you can imagine and then plan for documentation to try to avoid it. That means thinking things through properly and making sure that all involved have separate legal advice.
This independent advice is of critical importance in case someone later tries to undermine the earlier agreement. There will be financial costs involved in coming to these agreements but these costs will be money well spent if it avoids major legal actions at a later date.
Here are a few simple examples to show you what I mean:
• If you give a family member money to help with a house or business purchase then get an acknowledgement of debt. That should isolate the funds which would be returned to you in the event of a sale after a marriage break down. The alternative is to lose half.
• If shares in a family business are involved then seek some binding agreement that no sale will be forced following a breakdown.
• If a family investment or holiday property is being passed to the next generation then make sure it goes into a special family trust so that it is protected.
These are a few simple steps that can be taken to protect family assets from a marriage breakdown in particular. They may also be of benefit should there be a reintroduction of death duties even if they are called inheritance taxes next time round.
The actions I am suggesting are not aimed at being unfair to particular parties but rather for the protectioin of family assets. There are other ways of ensuring fairness. All involve taking proper legal advice from experienced practitioners.
The aim of this article is to alert you to the need for proper family planning for the family you have. If you look after the assets created or inherited by you then surely you have an obligation to see they are protected for your family.
You will not regret it and future family members will be pleased you took the time and trouble to do so. If a family business is protected from a change of ownership your staff are also likely to be pleased. Family planning can help safeguard your business.
The next move is over to you.
