When we talk about protecting your bloodline, we mean protecting business value from leaving the family. For many business owners, transferring shares to children or other family members is a key part of long‑term succession planning. However, these well‑intentioned gifts can create unexpected risks.
If shares in your business are gifted to family members and those shares have value, they can become exposed on divorce. With divorce rates around one in three, this is a genuine risk. In these situations, part of the business value could end up with an ex‑spouse – an outcome that few family businesses would want.
To reduce this exposure and safeguard business wealth for future generations, there are two commonly used strategies.
1. Review the Rights Attached to the Shares
The first option is reviewing the rights attached to any shares being passed down.
Rather than gifting ordinary shares, it may be possible to issue shares with limited rights, such as growth shares. These typically have a lower value at the outset, while still allowing future growth to pass to the next generation. This means that if a family member divorces soon after receiving the shares, the immediate value at stake is significantly lower.
If this approach is used, it is important that the ownership change still makes sense commercially and from a tax perspective. Growth shares must be structured carefully to stand up to scrutiny and deliver the intended long‑term benefits.
2. Use a Family Discretionary Trust
The second option is a family discretionary trust.
This is more complex than direct ownership, but the shares sit outside the individual’s estate. As a result, the trust can provide a much higher level of protection if relationships break down. Because no one beneficiary “owns” the shares outright, they are far less exposed to claims during divorce proceedings.
Trusts can also support wider estate planning goals, offering control, flexibility and potential tax efficiencies – all while keeping the value of the business within the family line.
Planning for the Future
Succession planning is never just about passing down wealth – it’s about protecting it. Whether through share restructuring or the use of a discretionary trust, taking proactive steps today can secure your business’s future and ensure your family retains the value you have worked hard to build.
If you’re considering gifting shares, restructuring ownership, or reviewing your family succession strategy, Johnston Wood Roach can help you choose the right approach for your circumstances. Get in touch today to protect your business, your family, and your legacy.
