Protecting Your Business In Divorce - What You Should And Should Not Do In Sri Lanka

By Author: Anna Paquin
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When a married couple are directors and shareholders of the same business, there can be many issues if they end up in a divorce. According to law firms in Sri Lanka, business can be significantly affected during a divorce in several ways:
• Asset Division: If one or both spouses are owners or have a stake in the business, the business may need to be valued and divided as part of the divorce settlement. This can lead to complex negotiations with civil lawyers in Sri Lanka and potential restructuring.
• Operational Disruption: The divorce process can cause distractions or emotional strain for the owners, which might affect the day-to-day operations and decision-making of the business.
• Valuation: Determining the value of the business can be complicated and may require expert valuation services. The business's worth needs to be accurately assessed to ensure a fair division of assets.
• Ownership Changes: If one spouse is awarded ownership of the business, it might require changes in the management structure or operational dynamics. Alternatively, the business might need to be sold if neither spouse ...
... wants to retain it.
• Financial Impact: The division of business assets can affect the financial health of the business, potentially leading to changes in capital, investment strategies, or debt management.
• Legal and Tax Implications: The divorce settlement can have legal and tax consequences for the business, such as changes in ownership structure or tax liabilities.
• Client and Employee Relations: The divorce could affect relationships with clients and employees if it leads to uncertainty or changes in leadership and direction.
• Confidentiality and Non-Compete Issues: There may be concerns about protecting confidential business information or enforcing non-compete agreements if the divorce involves business partners.

It is often helpful for business owners going through a divorce to work with reputed business lawyers in Sri Lanka and financial professionals who have experience in handling business-related divorce issues to navigate these complexities effectively.

What should you and should not you do in such an instance in Sri Lanka?
In Sri Lanka, handling a business during a divorce involves specific considerations related to local legal and business practices. Here is a guide on what you should and should not do:

What You Should Do:
• Seek Professional Advice: Engage with the best lawyers in Sri Lanka who specialise in family law and business valuations. This will help ensure that you understand your rights and obligations and that the business is fairly assessed and divided.
• Value the Business Properly: Obtain a professional valuation of the business to determine its fair market value. This helps in negotiating a fair settlement and ensuring equitable distribution of assets.
• Document Everything: Keep detailed records of all business financials, ownership structures, and relevant documents. This transparency can help in the valuation process and during legal proceedings.
• Negotiate Fairly: Aim for a fair settlement that considers the contributions and stakes of both parties. Mediation or negotiation can be more effective and less adversarial than a court battle.
• Consider Tax Implications: Be aware of potential tax consequences of dividing business assets and consult with a tax advisor to understand how the divorce settlement might affect your tax situation.
• Protect Business Interests: Ensure that the business’s operations and client relationships are maintained during the divorce process. Communicate clearly with employees and clients to minimise disruptions.
• Review Ownership and Management: If the business is to be retained by one spouse, review and adjust the ownership and management structure to reflect the new circumstances.

What You Shouldn’t Do:
• Avoid Concealing Assets: Do not hide or undervalue business assets. Concealing assets can lead to legal consequences and negatively impact the divorce settlement.
• Do not Let Emotions Drive Decisions: Try to separate personal emotions from business decisions. Emotional decisions can lead to unfair or impractical outcomes.
• Do not Neglect Legal Requirements: Failing to adhere to legal processes and requirements can lead to complications or unfavourable outcomes. Ensure that all legal paperwork and court orders are properly handled.
• Avoid Ignoring Business Operations: Do not let the divorce interfere with the day-to-day operations of the business. Neglecting business responsibilities can affect its performance and value.
• Do not Make Hasty Decisions: Avoid rushing into decisions regarding the business without fully understanding the implications. Take the time to carefully consider all options and seek professional advice.
• Do not Disregard Confidentiality: Avoid discussing sensitive business information or the details of the divorce publicly. Protecting confidentiality helps maintain business integrity and personal privacy.

Navigating a divorce involving a business in Sri Lanka can be complex, so having a knowledgeable legal and financial team is crucial to managing the process smoothly.

Can you settle this issue amicably?
Yes, settling a divorce involving a business amicably is possible and can be beneficial for all parties involved. Here are some strategies to help achieve an amicable resolution:

Strategies for Amicable Settlement:
• Open Communication: Maintain open, honest, and respectful communication with your spouse. Discussing your concerns and desires can help both parties understand each other's perspectives and work towards a mutually agreeable solution.
• Mediation: Consider using a mediator—a neutral third party who can facilitate discussions and negotiations. Mediators can help both parties reach a fair agreement without going to court.
• Collaborative Divorce: Engage in a collaborative divorce process, where both parties and their lawyers work together to resolve issues amicably. This approach focuses on problem-solving rather than adversarial litigation.
• Fair Business Valuation: Agree on a professional and impartial valuation of the business. This ensures that both parties have a clear understanding of the business's worth and can make informed decisions about its division.
• Negotiation: Be willing to negotiate and compromise. Flexibility and a willingness to find common ground can lead to a fair and satisfactory settlement for both parties.
• Legal Advice: Work with legal professionals who specialise in family and business law. They can provide guidance on how to structure an agreement that is fair and legally sound.
• Document Agreements: Clearly document all agreements and ensure they are legally binding. This helps prevent misunderstandings and disputes later on.
• Focus on the Future: Consider the long-term implications of any agreement and how it will affect both parties moving forward. Strive for a solution that supports a positive future for both you and your spouse.

Benefits of an Amicable Settlement:
• Reduced Stress: An amicable resolution typically involves less conflict and emotional stress than a contentious legal battle.
• Lower Costs: Settling out of court can reduce legal fees and associated costs.
• Preserved Relationships: An amicable settlement can help preserve a working relationship, which is particularly important if you will continue to interact with your spouse in a business context.
• Faster Resolution: Settling amicably can expedite the divorce process, allowing both parties to move on more quickly.

While achieving an amicable settlement is possible, it may require effort and cooperation from both parties. Being open to compromise and working with professionals can greatly increase the chances of a successful resolution.

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