When a marriage breaks down, the treatment of business interests can quickly become one of the most complex and contentious aspects of the divorce. This is particularly true if one spouse owns shares in a company that is governed by a shareholder agreement.
While a shareholder agreement can influence how a business interest is treated on divorce, it does not automatically override the court’s statutory duty to achieve a fair outcome under the Matrimonial Causes Act 1973. The extent to which it affects the settlement depends on its terms, timing, purpose, and how it operates in practice.
This article looks at how the family court approaches shareholder agreements, what weight they are likely to carry, and which clauses are most likely to make a meaningful difference in divorce proceedings.
Does it matter if a shareholder agreement is in place?
A shareholder agreement is a private contract between shareholders, and generally regulates matters such as share ownership, voting rights, dividend policy, restrictions on transfers, and valuation mechanisms.
However, the existence of a shareholder agreement does not automatically ring-fence the shares from the matrimonial pot. The family court is not bound by commercial agreements to which only one spouse is a party. Instead, the agreement is treated as part of the factual background when determining the value, liquidity, and practical availability of the shareholding.
The court’s primary concern remains fairness between spouses, not the enforcement of commercial arrangements as an end in themselves.
Will the court consider the content of the agreement?
The court will look closely at what the agreement actually does, rather than simply noting that one exists.
In financial proceedings, judges routinely examine shareholder agreements to understand:
- Whether the shares can be sold or transferred
- Whether the shareholder spouse has control over dividend payments
- How profits are treated within the company
- Whether there are compulsory transfer provisions on divorce
- Whether the shareholder can realise value without breaching the agreement
A shareholding that appears valuable on paper may be worth significantly less in real terms if the owner cannot sell it, cannot extract income from it, and cannot force a sale of the company.
That said, the court is always alert to the possibility that shareholder agreements may be structured in such a way that artificially depresses the shareholdings value or restricts access in a way that is convenient for divorce purposes but would be less rigorously applied in ordinary commercial life.
Dividend clauses and the treatment of profits
One of the most significant areas of scrutiny is how profits and dividends are dealt with under the agreement.
If a shareholder agreement gives directors wide discretion over whether dividends are declared, the court will look at how that discretion is exercised in practice. For example, if profits are routinely retained within the business while the shareholder spouse receives income via salary, loans, or benefits in kind, the court may conclude that the absence of dividends does not reflect a lack of available resources.
On the other hand, where dividends are genuinely restricted, perhaps to fund growth, service debt, or comply with banking covenants, the court may accept that the shareholder’s ability to draw income is limited.
Clauses that prohibit dividends altogether, or require unanimous shareholder consent, can reduce the apparent income stream available to the shareholder spouse. Judges rarely make decisions solely based on such clauses. They often investigate whether these restrictions are consistently upheld and commercially reasonable, or if they can be modified after divorce proceedings are finalised.
Valuation provisions and artificially low values
Many shareholder agreements contain valuation clauses specifying how shares are to be valued on certain trigger events, such as death, retirement, or a compulsory transfer. These clauses can have a significant impact on divorce proceedings.
From a family law perspective, the court is not obliged to accept the valuation method set out in the shareholder agreement, particularly if it produces a figure that appears unrealistically low. While such provisions may make sense commercially, the family court’s focus is different: the question is not what the shares would fetch under a forced transfer between shareholders, but what they are worth to the owning spouse as a financial resource.
Pre-marriage shareholder agreements
If a shareholder agreement pre-dates the marriage, this can be a relevant factor, but it is not decisive. Where shares were acquired before the marriage and governed by a long-standing agreement, the owning spouse may argue that the business interest is non-matrimonial property.
The court may accept this to a degree, particularly in shorter marriages or where the non-owning spouse had little involvement in the business. However, over a long marriage, especially where business income supported the family lifestyle, the distinction between matrimonial and non-matrimonial property often becomes blurred.
The existence of a pre-marital shareholder agreement may help explain why the business cannot be divided or sold, but it will not necessarily prevent the court from sharing its value indirectly. For example, by offsetting it against other assets or making an order for ongoing maintenance.
Agreements signed shortly before separation
Shareholder agreements entered into shortly before separation tend to attract closer scrutiny.
If an agreement is signed in the shadow of relationship breakdown, the court may question its purpose and timing. Was it genuinely part of a wider commercial restructuring, or was it designed to limit the spouse’s financial exposure in anticipated divorce proceedings?
If the court suspects an agreement was intended to defeat a spouse’s financial claim, it may attach little weight to its provisions, particularly if they depart from previous practice. Sudden changes to dividend policy, valuation methods, or transfer restrictions are often viewed with scepticism.
That does not mean such agreements are ignored entirely, but their evidential weight may be reduced, especially where they appear inconsistent with the underlying commercial reality.
Does control matter?
A minority shareholding subject to a restrictive shareholder agreement may genuinely be of limited value if the shareholder has no control over dividends, remuneration, or exit. By contrast, a majority shareholder who can influence board decisions may find it harder to argue that profits are locked in beyond their reach.
The court will look beyond formal titles to understand how decisions are actually made. If the shareholder spouse effectively runs the business, the court may conclude that they have greater access than the agreement suggests.
Interaction with third parties
One reason the court approaches shareholder agreements cautiously is the presence of third-party interests. Other shareholders, who are not parties to the marriage, are entitled to have their contractual rights respected.
The family court is generally reluctant to make orders that would force a breach of a shareholder agreement or unfairly prejudice other shareholders. Instead, it may seek alternative solutions, such as awarding the non-owning spouse a greater share of non-business assets or ordering spousal maintenance to reflect the income generated by the business.
Practical impact on divorce outcomes
In practice, a shareholder agreement is more likely to influence how a settlement is structured rather than whether a business interest is taken into account at all.
Common outcomes include:
- The business interest being retained by the shareholder spouse, with the other spouse compensated elsewhere
- Maintenance orders reflecting business income rather than capital division
- Adjustments to valuation conventions rather than wholesale acceptance of the agreement’s figures
Ultimately, the court’s overarching aim is to achieve fairness, balancing commercial reality with the financial needs and contributions of both spouses.