Can I walk away from business with wife and start a new one?

[Adayinthelifeof]

My wife and I separated approx 6 weeks ago. She has left and is currently at her mothers.

We run a ltd company together. The business is heavily reliant upon me. If I'm not there the business won't survive a week. We're both directors and 50/50 shareholders.

My wife has never put many hours into the business and the business can easily survive without her. To be honest she's been a bit of a challenge to work with and the business would have failed if left up to her. I've grafted hard and built up a good business. This is a big part of why I want to separate.

We have around £350k in debts as we made a bad business decision approx 5 years ago. We draw down approx £70k over a year from the business. This year it will likely make £90k profit.

We have virtually no assets. We rent our house. Vehicles are hired. No children.

In trying to get a separation agreement put together I've suggested I take 100% of the business, take on 100% of the debts (£350k) and pay her £12k per year for 3 years to help her get back on her feet. She agreed.

It has all been amicable but some days she's in a foul mood and feels she's getting a poor deal. I personally think it's a cracking deal. If I was offered what I'm suggesting to her I'd jump at it. In fact I'd take the deal without the £12k per year. I'd love to walk away from this debt free! She keeps wanting more and more and the deal is starting become unattractive to me. She's now saying she wants to remain a shareholder and director in the business as she needs more income.

What I'd like to know is, if push comes to shove, can I walk away from our existing business. Start a new business and start again on my own with me as sole director? The staff would leave and come and work for me in an instant. I don't want to do this but I don't want to budge any further otherwise I'm going to end up working my nuts off to give it to her. I produce around 95% of the business' income. I spent 5 years working 120 hour weeks when she was working approx 20!

As I understand it, anything I do business-wise after we have separated is nothing to do with her. Am I correct?

I want to remain amicable but I'm starting to feel like she's getting greedy so I need to know if what I have proposed above is possible. If she pushes me for much more I can see a fall out coming and I'll wind the business up and be on my way.

Any help much appreciated.

Am I correct?

No, not in the situation you describe.

For a start you cannot take the decision to wind up the business on your own. Your wife owns 50% of the shares and is a director. She would need to agree before you can wind up the company.

Setting up a new business in competition with the existing business in an attempt to take away customers and staff could be a breach of your duties as a director.

You need to consult a solicitor who specialises in company law.

Thanks for the response.

I wouldn't necessarily wind it up but I'm free to leave the business if I wish. It would then naturally collapse. I could move to another area which would not put me in competition.

I do need some professional advice on this though as I don't want to do anything that leaves me liable.

I would be happy to quit as a director. I'd be happy to give her 100% of the shares.

90k profits per year this year, and presumably more later? You are offering her 12k per year? She has 50% share of the business, so is entitled to the same amounts of dividends as you are!

If I remember correctly, some of the debts are to your MIL, she remortgaged her house to help you out, so has invested, what is HER share of the business, or have you paid her back already?

"I would be happy to quit as a director. I'd be happy to give her 100% of the shares." You are happy for her to get 100% of the dividends? 100% of the debts too, I suppose?

So, you give her 100% of nothing, so she is left with 350k debts that you are responsible for?

You are a clever arse!

The loan from the MIL was personal. She has no shares. The 350k worth of debt I'm willing to take on includes repayment of the MILs debts. I'm willing to do this and pay her every penny back but if my wife keeps pushing for more I'll have no desire to do so as I'll not be able to live as the bulk of the income from the business will be taken up in paying these debts.

The deal I've offered my wife would be I take the debt, she transfers the shares, I pay back her MIL and she gets 12k for 3 years.

We're jointly responsible for the debts. I don't want to carry on working together so my offer is to pay the debts back but in return I want the business.

Otherwise she can have the business and half the debts.

We have no assets so other than this deal I have nothing to offer her and she has nothing to offer me.

It is not a good deal for her.

90k worth of profits split equally between the two of you is 45k, and you are offering her 12, for 3 years.

If I was her, I would not go for it.

But it sounds like you are going to force it through and start another business anyway, so I guess that all she has left after supporting you, and her mum putting her home at risk, is 12k per year for 3 years, or nothing.

Can you really do that to another person?

"Otherwise she can have the business and half the debts."

Is the debts to your MIL in addition to the 350k? How much debt is your wife liable to as per the 50% share of the company?

The problem is that she hasn't supported me. Yes she will only get 12k per year but I will spend the next 10-15 years paying off 350k, maybe more as I have a house I borrowed against to fund the failing business that is in negative equity, another 70k or so. The 350k includes MILs loan.

I really don't want to do this. I get on great with my MIL and still do. I'm just considering my options.

The business only makes the money it does because of my input. Not hers.

All of the debts are joint personal debts. The business owes nothing.

I think you need proper legal advice. Your situation is very complicated

It is kind of complicated. However at the same time it's quite simple.

We have no children and no assets.

We can't work together.

Therefore one of us needs to take the business and I feel the only way to counterbalance this is that whoever takes the business takes the debt.

I have nothing more to offer. I can't afford to pay more than 12k a year. Well, I could, but then I'd have to pay her mum back over 25 years instead of 15.

I can likely carry on expanding the business but I'm not going to base any kind of settlement of what the business 'might' do in the future as anything extra income it makes will be due solely to my efforts.

I deal with this kind of situation professionally, financial not on the legal side.

You need legal advice. I suspect Your wife would have legal recourse if you tried to do this.

If she got legal advice on this and your business was valued either as part of a shareholder dispute or in the divorce on the face of it it sounds like your initial offer of £36k over three years could be too low.

Usually both sides lose when this kind of disagreement occurs. The lawyers and the accountants win. You'd be better off upping your offer to reach a common ground. Think about it, your wife provided the connection to get you the investment you needed to start up. Now you're up and doing well you're looking to ditch the people who were willing to take a risk on you in the first place. Also you're asking your wife to give up £70k salary a year for apparently doing little. You lose her you gain that salary as profit. In any case a more amicable settlement will minimise legal and other costs. Start being a scumbag and watch those costs escalate.

No doubt you could find ways to screw over your wife and her mother. I wonder if it will come back to bite you. What impact could being so untrustworthy have on you in the future, with your employees, customers, investors etc?

Anyway, You risk running up some hefty professional services fees over the next few years. Get a lawyer.

Yeah you may be right. I very much want to do the decent thing. The money borrowed from the MIL didn't get this business started. Istarted it from nothing. The MIL loan helped us purchase a second business which failed due to a physcho business partner.

I admire and care for my MIL greatly. We're very good friends so what I've discussed above is an absolute, back against the wall, last resort that will likely never happen. As you say it may be easier to give a few extra quid away to keep the peace.

I think you have made a cracking offer, and your W should be biting your hand off! If you settle it via divorce proceedings, your W would have an order for spousal maintenance. If your business takes off though, she could seek to vary the £12k upwards during the term of the order.

Also, how would you take on the £350k debt...would you be able to release your W from the debt, or just assume responsibility between you and her? If the latter, there's not much security in that for her. If you can get her name off the debts entirely, that is a pretty big deal for her and worth giving up shares for....

As there are no other assets and the value in the business appears to be the income it produces I would have thought there would be a possibility her successfully making a claim for a substantial amount of spouse maintenance for many years to come.

i think you're being very generous with her considering she put in 20 hours per week compared to your 120! i don't think she even deserves 50% of the business as she clearly didn't put the hard work in.

if i were you i would offer her a full 50/50 split of the debts and make a fresh start with regards the business.

To be fair she's had a bit of a miserable time when we had the financial problems and lost the other business. She has suffered badly from depression. I don't want to riddle her with the debt and ruin her life. I can make that kind of money back but she can't.

I would accept responsibility for the debts by singing a legal agreement saying so. Can't offer much more in security as anyone knows that contracts are worthless unless you have the money to enforce them. If the deal is taken it will be in full and final settlement.

This is the reason for my post really is just to see what my options are if I'm pushed for more money as I'm not willing to work the rest of my life and give it all away. If I was offered the same deal by her I'd jump at it. To come out of this debt free would be amazing.

I answered this on your thread in Divorce but I did this - I am wife but my contribution much greater than my Ex's. It was very effective for me, but I only took this step after my X was completely unreasonable. I made him an offer for more than 50% of net asset value which he turned down. I found it difficult to run business with an obstructive partner, so I went on companies house web site one night & formed a new ltd company, solely owned by me. All staff resigned from old positions & hired by new company, new bank account, & all my clients moved to new company. It was a lot of work & a good accountant & bookkeeper were essential, but it saved my finances, my life & my mental health. The old company exists (winding down not strictly necessary.)
I am theoretically vulnerable to a lawsuit under companies house regs, but the risk is low as it would cost more to sue than he could actually get. The important point is your partner cannot stop you from doing it. Takes a high level of management & co-ordination to pull off - new insurances, new name on all docs, etc. My new business bank was super-helpful. It can be a solution as long as you are aware of the risks. PM me if you need more info.

There are no companies house regulations to prevent you setting up a new business doing the exact same work with the exact same clients as your old one.

The only way this would cause you difficulties is if you were to deliberately make the old company insolvent before you did that, and even then it would be of more interest to HMRC.

What you need to check is your original shareholders agreement and directors agreements from when you set the company up. These may prevent you carrying out the same type of business or working with the same clients within a certain distance range or a certain timescale. However, even if this is specifically mentioned you may find that a good contract lawyer would be able to prove it was too restrictive and get it overturned in court should it ever come to that. For it to get that far your wife would have to have the knowledge and resources to sue you in the first place........

Re your offer it's difficult to say if it's fair or not without knowing all the details of your income and expenditure at the moment. One thing that jumped out at me is that although you say you have no assets, you later mention a property. It may be in negative equity now but this will not always be the case.

Regardless of whether there is anything in shareholders or directors agreements it is a breach of a director's fiduciary duties to set up a new business in competition with the existing business and attempt to take away staff and customers. No contract lawyer can overturn that. The original company may be able to claim all the profits made by the new business as a result of taking customers and staff - see CMS Dolphin Ltd v Simonet.

And going back to the previous post by Moanranger...

risk is low as it would cost more to sue than he could actually get

You do realise that, if he did sue, he would be able to reclaim his costs from you when he won, as he undoubtedly would given the facts you describe.