When one or both parties to a marriage have shares in a private limited company, it can introduce complex financial considerations upon divorce. One option for addressing this situation is to agree a company buyback of shares.

What is share buyback?

A share buyback in divorce is a financial transaction that occurs when a company repurchases shares from either one or both of the parties. This process can help facilitate a financial settlement.

In some circumstances, it may be that one party manages and runs a business but the other party also holds shares in it. When this is a feature of the divorce, the Court can order the transfer of shares from one party to the other as part of the financial settlement.

Key Considerations in Implementing a Share Buyback in Divorce

1. Company’s Financial Capacity: Before proceeding with a share buyback, the company must have the financial resources to repurchase the shares. This should be evaluated to ensure that the business is financially stable and can afford to buyback the shares without impacting on future viability.
2. Share Valuation: Determining the fair market value of the shares is crucial. This valuation may require the involvement of accountants, financial advisors or an independent professional to agree a fair value.
3. Compliance: Share buybacks in divorce are subject to legal and regulatory requirements. Compliance with these rules and regulations, including prior approval from HMRC, is essential. It is important to have a legal team who can work collaboratively with your trusted advisors to offer a 360 degree approach to your case.
4. Open Communication: Effective communication between the divorcing parties and the company is vital to ensure transparency and fairness in the process. The terms and conditions of the buyback should be clearly defined and agreed upon by all involved parties.

Benefits of Share Buybacks in Divorce

• Asset Division: If agreed between the parties, share buybacks can provide an alternative way in which assets can be divided upon divorce offering flexibility.
• Liquidity: The repurchase of shares provides an immediate source of funds to the divorcing parties, which can be essential for meeting financial obligations or reallocating investments according to their post-divorce financial plans.
• Business Continuity: Share buybacks can help maintain business continuity by preventing the disruption of operations. If one party wishes to exit the business, a buyback can provide an orderly transition without negatively affecting the company.
• Financial Fairness: When one party has a significant shareholding in the business, a share buyback can help ensure a fair division of assets, as the other party receives an equitable share of the business’s value.

A share buyback in divorce can provide an effective means of asset division when one or both parties have shareholdings in a company. By facilitating a smooth transition and providing liquid funds to the divorcing parties, it can help achieve financial fairness and business continuity. However, implementing a share buyback in divorce requires careful consideration of financial capacity, share valuation, legal compliance, and open communication between the involved parties. Ultimately, a well-executed share buyback can contribute to a fair and efficient resolution of financial matters in the context of divorce, allowing both parties to move forward with clarity and financial stability.

For more information on this or to have a chat about your shareholding, please get in touch with us here or contact Mercedes or Holly.

Pensions can be one of the most valuable, yet frequently overlooked assets in divorce. Denney King will explore with you the complexities of protecting pension assets during divorce and offer advice on safeguarding your financial future.

Understanding pension assets

Private pensions are retirement savings plans offered by employers which provide you with an income in retirement. They may come in various forms, such as defined benefit (final salary) pension or defined contribution plans. It is important to remember that they represent a valuable financial asset in divorce proceedings which is as important as savings, investments or the equity in your home and can be divided as part of your financial settlement through the use of a Pension Sharing Order.

The complexities involved in dealing with pension assets

1. Valuation: Pensions are not like other assets that can usually be easily valued. Valuing a pension requires expertise and specialist calculations based on factors including the plan’s term, any guaranteed benefits, your age, and expected retirement date. Therefore, in many cases, and in particular when dealing with a defined benefit pension it is essential that a Pension Expert on Divorce (PODE) is instructed to provide expert advice as to how a pension should be shared.
2. Tax Implications: The division of pension assets may have tax consequences, and the timing of withdrawals can result in a tax liability. It’s crucial to consult with financial and tax professionals to understand the implications involved with this.
3. Timings: The value of a pension cannot be accessed until the retirement date provided for in the plan. In some cases this means there is a gap or shortfall in income from the date of separation until retirement benefits can be drawn.
4. Offsetting: The complex nature of pension assets means that they are not directly comparable with other matrimonial assets such as property and investments which makes offsetting complicated and risky without the benefit of expert actuarial advice.

Strategies for protecting pension assets

To safeguard your pension assets during divorce, consider the following strategies:

1. Consult with Experts: Seek the advice of professionals, such as a family lawyer, financial advisors, and actuaries experienced in pension valuation. Their expertise can be invaluable in navigating the complexities.
2. Be Prepared: Have a good understanding of your pension plan and obtain a Cash Equivalent Value (CEV) at an early stage together with the policy document, as this can take some time to be provided. This will give you a guide of the valuation of your pension to take into account in the negotiations.
3. Plan Ahead: During and After the divorce process you should take advice from a financial advisor to evaluate your needs in retirement.

Protecting pension assets in divorce can be a daunting task, given the nature of these investments and that they are commonly misunderstood. However, with professional guidance and a clear understanding of the complexities involved, you can navigate this process successfully. By taking steps to protect your pension assets, you can secure your financial future and feel confident that your needs in retirement are taken care of in your divorce settlement.

If you would like further advice contact us or get in touch with Holly. 

Succession planning is an essential part of running a family farm business and when it is done properly it can reduce the risk of family disputes. It puts you in control of what happens to your interest and assets either during your lifetime or upon your death.  It is important as it can avoid leaving behind issues for your family or the potential for large tax bills which could cause cash flow difficulties, this is especially crucial if your intention is that the farm business is to continue.

As many farms are often run by families and can provide both a family home and an income, they can be particularly susceptible to disputes, particularly where family members have different visions for the future of the farm after the older generation have passed away.

What happens if you die without a Will?

If you die without making a valid will, then your estate will be subject to the ‘intestacy rules’. For many people these rules do not distribute their assets how they would have chosen. Under these rules, only married or civil partners and some other close relatives can inherit. If you have separated but not divorced from a former partner, then they will still inherit your estate regardless as to whether you are co-habiting with a new partner or not. Co-habiting partners cannot inherit under the rules of intestacy.

The intestacy rules can also have high capital gains tax consequences, these can be easily avoided by having a carefully prepared Will.

What are the benefits of having a Will?

Having a Will in place allows you to decide what happens to your estate and who benefits from your property, interests and belongings on your death. This also includes what happens to the farming partnership, company, or any tenancies.

How can Denney King help you?

Costly mistakes are often made when distinguishing, within a Will, farming business assets and the farm itself.  We can help examine your personal and business assets and identify any areas of potential confusion at an early stage to help minimise any future family arguments.

We encourage an open dialogue with your accountant to ensure that there is joined up thinking amongst your advisors, with the aim of providing a clear picture to the Revenue following your death, particularly if reliefs such as Agricultural Property Relief and Business Property Relief are to be claimed.  Our expertise in succession and inheritance planning will help achieve the best overall outcome for you and those you care about.

The most effective way to make sure your wishes are carried out is to take specialist legal advice. Our Agricultural and Private Client specialists work closely to provide you with the expertise you need.

Contact our Evesham or Leominster offices for more information

Sarah Denney-Richards

Director of Farming & Estates

sarah@denneyking.co.uk | https://denneyking.co.uk/

Rebecca Mainwaring

Senior Associate Solicitor – Denney King

becci@denneyking.co.uk | https://denneyking.co.uk/

Call: 01386 764728

Are you from a farming family? Do you or your children work in the family farming partnership or business? Do you farm land owned by a family member, friend or neighbour under an informal arrangement rather than an Agricultural Holdings Act tenancy or Farm Business Tenancy?

If so, the decision in Guest may impact your life and on your family!

Holly Smith, Associate Solicitor in the Family team discusses the decision in Guest and another v Guest [2022] UKSC 27 case, and the impact that judgment will have on farming families generally.

Andrew, the adult Son in Guest, lived and worked on his parent’s farm for over 30 years. Andrew worked long hours for minimal pay over a long period of time on the promise that he would inherit part of the farm on his parent’s death. Like many farming families, the family arrangements were discussed informally “around the kitchen table” and had not been recorded in writing.

When relationships broke down between Andrew and his parents, they (as the legal owners of the property in which Andrew lived) forced Andrew and his family to leave the property, and they wrote him out of their wills, so that he was no longer set to inherit part of the farm and/or the farming business when they died.

Andrew sought to secure his home and his inheritance and therefore the judges in Guest had to consider whether Andrew should receive monetary compensation or, should he be entitled to receive what was promised to him, i.e., an inheritance of part of the farm and/or his family home?

Whilst there are legal complexities to the case, the judgment ultimately provided that if one party (the parents in this case) promised the other something, (Andrew), and the person who was made the promise, relied on it and acted to their detriment, which Andrew did, then his parents having made the promise would be required to fulfil it, unless it would be unfair or “unconscionable” for them to do so.

If you are in a similar situation to Andrew or his parents, and you would like to discuss your options with us. Please contact us for a free initial chat using the below details.

We are also able to advise in relation to wills, lifetime tax planning, probate work including administering estates, lasting power of attorneys, partnership and shareholders agreements and transfers of agricultural land and property.

Holly Smith

Associate Solicitor – Denney King

07936951063 | Holly@denneyking.co.uk | https://denneyking.co.uk/

Lasting Power of Attorney. Whether you are young, fit, and healthy or starting to take things a little slower, a lasting power of attorney is an essential item in the toolbox of life!