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  • Keeping it in the family: entrepreneurial families and divorce

    23 May 2017

    Andy Wood

    One of the most profound developments in British business since the turn of the century has been the impact of entrepreneurial spirit.

    According to one recent estimate, more than two million small and medium-sized companies have started in this country since the year 2000.

    Together, suggests the same source, they account for £1.8 trillion in turnover – that’s just under half of all private sector turnover in the UK.

    The rate at which the DIY approach to commerce continues to proliferate is nothing short of astonishing. Companies House records indicate that some 80 firms are incorporated every hour.

    Many of those new enterprises might be classed as family businesses, established with the intention of generating wealth – and the security which it brings – for spouses, children and siblings.

    However, a tremendous shift in family structure over the last 40 years has meant that such companies are subject to domestic pressures which can almost be the equal of the turbulence and tensions created in any industrial sector.

    Last December, the Office for National Statistics (ONS) issued figures showing that just over 111,000 couples divorced in England and Wales during 2014. It’s now reckoned that more than 40 per cent of marriages end in just such a fashion.

    It’s no surprise, then, that businessmen and women try to insulate their ventures from the kinds of instability and uncertainty which can arise from perhaps having to sell or transfer shares as part of a divorce settlement.

    What is new, though, is something which myself and my colleagues at Enterprise Tax Consultants have seen over the last few years.

    Rather than putting in place measures to limit the potential damage which might be caused by their own divorces, entrepreneurs are taking steps to avoid trouble stemming from their children’s relationships.

    As I’ve been telling Greg Hurst, The Times’ Social Affairs Editor, many businessmen in particular are setting up discretionary trusts to support their children financially and protect them and their companies from individuals who they describe as “financial predators”.

    They’re choosing not to insist on prenuptial agreements instead because they do not yet carry the full force of law.

    We have seen such arrangements – which range in value from hundreds of thousands to many millions of pounds – increase by one-third over the last five years and we’re dealing with dozens of other, similar requests each and every month.

    In my opinion, it underlines how trusts, which were once regarded as the preserve only of the exceptionally wealthy, have become democratised.

    People are far more sophisticated now when it comes to wealth planning than previous generations.

    Entrepreneurs, in particular, understand the need to put processes and structures in place to insulate their businesses from possible sources of instability, thereby achieving their original goal of providing for their families well into the future.

    If you have any queries regarding tax and the family business, or any other matters, then please get in touch.