While entrepreneurs and business owners alike will routinely plan for market volatility, tax exposure and succession, one of the most financially disruptive risks to personal and business wealth still remains widely overlooked: divorce.
Teresa Davidson, Partner and Head of Family at Winston Solicitors, is urging those who oversee the running of a business to consider how a lack of early planning can lead to complex, costly and avoidable disputes.
“For business owners, founders and other high-net worth individuals, risk management becomes second nature, with strategies put in place to protect assets, manage liabilities and ensure long-term security and growth. Unfortunately, when it comes to personal relationships, a similar level of foresight is often lacking.
“Many of the most difficult divorce disputes we deal with here at Winston Solicitors stem from a lack of understanding around complex assets. Pensions, shareholdings, company benefits and long-term incentive plans are often either undervalued or misunderstood entirely, which can dramatically affect the outcome of a settlement.
“No one enters a relationship expecting it to end, but from a commercial perspective, it is no different to any other risk, and the earlier you plan, the better protected you are.
The hidden cost of ‘doing nothing’
“A common misconception among wealthy individuals is that structures like trusts or informal arrangements will automatically protect one’s wealth in the event of a divorce, when in reality the opposite is often true.
“Trusts are not simply protective because they exist, and how they have been used, as well as how the funds have been distributed will be closely examined during proceedings. This often adds layers of complexity, increased legal costs and the likelihood of dispute.
“Similarly, loosely documented financial arrangements like family loans or unclear company drawings can become contentious.
“These arrangements are frequently picked apart by courts, and what the courts may class as a ‘soft loan’ can suddenly be found not to be enforceable, whereas other financial contributions by family can be contentious, leading to third-party involvement, delays and significant additional costs.
Why entrepreneurs are particularly exposed
“Entrepreneurs are natural problem-solvers, used to navigating challenges and finding creative solutions. But divorce is different, it requires full financial transparency, and the courts have wide-reaching powers. Many may underestimate just how exposed their business interests are.
“A key issue is the assumption that business assets are somehow separate or protected from a spouse or ex-spouse during the divorce process.
“Many founders understandably view their business as ‘theirs’, something built independently of the relationship, yet in divorce, those assets are very much in scope, and unrealistic valuations or expectations can quickly lead to conflict.
The overlooked consequence of business disruption
“Taking personal finances out of the equation, divorce can also have a direct and lasting impact on business performance by introducing uncertainty which can weaken the capital base. This can disrupt growth plans, delay exits or M&A strategy, and potentially affect succession planning for the next generation.
“In some cases, the impact extends further than just the divorcees, and if funds are required to be extracted from a business, then employees, business partners and suppliers can all be affected. We’ve even seen situations where disputes spill into a workplace, damaging morale and risking corporate reputations.
Emotions vs economics
“While financial complexities are a major driver of costs, emotion can often play an equally significant role. Individuals with high-net worths can afford to pay litigation fees, and that can lead to decisions driven by principle rather than direct financial outcomes.
“I regularly witness cases where parties prioritise principles, rather than reaching a pragmatic settlement, which can significantly extend litigation and lead to increased costs.
“From a legal perspective, when it comes to entrepreneurial risk management, the most effective protection remains a well-drafted pre-nuptial or post-nuptial agreement that reduces the scope for dispute.
“Business owners should also be thinking carefully about how business ownership is structured, ensuring proper documentation is in place, and taking advice before making major financial decisions, particularly where a spouse is involved.”
