The pitfalls of giving business shares to your spouse

Some business owners often wish to make their spouse a shareholder in their company, either for personal reasons, or quite often for tax planning purposes.

However, it is worth being aware that this can cause major problems if the couple come to divorce or separate.

In the short-term problems can be caused when the ‘non-owner’ spouse is a shareholder or partner.

There can be significant issues that crop up in the day-to-day running of the business, such as objections to certain company expenditure, or in the hiring of employees.

In the longer term, problems will inevitably arise as the spouse has a real interest in the business, often with the owner having to buy out their shareholding. This is independent of any other claims which the husband or wife may have.

In certain circumstances, this can also have adverse taxation effects. Where the owner has to buy back the shares and that takes place outside the year of separation, then a significant charge to capital gains tax may arise.

Many of these problems could be avoided, or their effect minimised, by taking appropriate expert advice before making your spouse part of the business.

If you would like to discuss this or any other family law matter, please contact Damian Baron on 01772 258321, or at damian.baron@harrison-drury.com