Michelle Mone seemingly has it all – founder of the successful Ultimo bra company, married with three children and living a jet-set lifestyle which takes her all over the world to promote her business, which is worth an estimated £50m.
So the news earlier this year that Mone was to split from her long term husband and business partner Michael came as a major shock. In interviews in February Mone described how her hectic schedule had effectively left her and her husband as only business partners, and how their split had left them living in separate wings of their substantial family home.
The sad case highlights potential pitfalls for married couples that embark on a joint business venture. Whilst marriage ensures a level of trust that few business partners could claim to enjoy, it also poses the major question of what should happen to the business if the couple should ever split.
White v White
The leading case on the subject was the landmark 2001 ruling by the House of Lords (then the country’s highest appeal court) in White v White. Martin and Pamela White were farmers who married in 1961. Both had farmed prior to their marriage, and after the wedding they continued in an equal business partnership, enjoying joint ownership of land that they later acquired.
The couple split in 1994, and in her divorce petition Mrs White applied for a ‘clean break’ settlement of £2.2m, reflecting roughly 50% of the value of their business assets. Prior to the White decision the rules on divorce settlements were applied to provide a ‘reasonable requirement’ amount for a spouse, in the first instance a one off payment to Mrs White of £800,000 and a transfer of all business assets to the husband: A bad deal for Mrs White, who felt entitled to half of their jointly owned assets and appealed. She was eventually awarded £1.5m.
The White case was remarkable because of the principles that the law Lords used to determine a fair settlement in divorce cases. The case firmly established the principle that any settlement should start with a 50:50 split. The case also established that a clean break settlement can be used to allow one party to continue operating the jointly owned business.
Understanding the law, and planning for the future
The law on divorce is statutory but much of the way the law is applied is found in case law and the way that other cases have been settled. It seems that courts will not necessarily order a business to be ‘sold’, although obviously if married business partners decide they cannot work together then something will have to change.
Business partner couples undergoing divorce are advised to consider mediation and other types of alternative dispute resolution to try to work out the mechanics of a split that deals with the business.
If a court does decide that a single payment should be made to transfer ownership to one party, then the valuation of the business will be crucial. This has risks, in that a profitable business may not remain profitable forever, however the courts have shown a willingness to be flexible in their assessment in the value of assets. Business strategy, expansion possibilities and market conditions are all factored into any settlement decision.
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