Divorce brings many complications to a person’s life. When a business is involved, the issues are amplified. If the business is significant to the marital estate, business confidentiality and protection of trade secrets are two central concerns during divorce. The threat of exposing the company’s sensitive business information to a spouse during the divorce process can jeopardise the future of the company. So, if divorce is likely, business owners need to take steps to protect their intellectual property and trade secrets.
Understanding Confidentiality and Trade Secrets in Divorce
Trade secrets and other confidential business information are often the linchpin of a company’s competitive advantage. Whether it’s a client list or a proprietary technology or some special way of doing business, they must often be kept very tightly under wraps to maintain that advantage. In the course of a divorce, the equitable distribution of assets can force these trade secrets into the open.
In the UK, for example, every party to a divorce is required to file a full financial disclosure, including details of business assets. While this might be intended to ensure a fair split of assets, it can also see business confidentiality take a hit. The details of business finances, partnerships and trade secrets might be entered in the court record and, unless specific protection orders are filed, become a matter of public record.
Steps to Safeguard Business Confidentiality
With unique assets on the line, business owners should think ahead and act accordingly to limit disclosure of business information in divorce proceedings. The following are a few steps business owners should consider.
Implement Non-Disclosure Agreements (NDAs)
NDAs are a useful practical measure to protect confidential information. A business owner can use an NDA to maintain confidentiality of confidential information and trade secrets not only with the other party but also with third parties who might be privy to that information. If divorce is on the cards, business owners should ask their solicitor whether they might be entitled to insist that their spouse and their lawyers agree to NDAs. This is particularly important if the spouse has been given access to confidential information during the marriage.
Limit Access to Sensitive Information
If the spouse continues to work at the company, he or she should have dramatically fewer privileges to sensitive files, financial records and proprietary data. Company officers should reassess their information security protocols to make sure that only people who truly need to know do know.
Establish Ownership Boundaries in Advance
One easy way to protect business interests from divorce is to draw ownership lines before trouble arises. Prenuptial and postnuptial agreements are legal contracts that can detail what business assets – including trade secrets – will be divided up in the event of a divorce. If a prenuptial agreement isn’t in place, a postnuptial agreement can still provide important protection.
Use Trusts or Corporate Structures
Keeping business assets in a trust, or holding them in corporate form, can also provide some protection against claims made as part of a divorce. A family trust with a nominee shareholder can hold shares in the business, for instance, and those shares won’t be treated as personal marital assets. The arrangements can, however, be complex, and it can be advisable to talk to a lawyer with an expertise in family and business law.
Keeping Trade Secrets Confidential in Court
If divorce proceedings require sensitive information to be revealed, some of it can be seen by no other eyes than the judge or relevant legal representatives by way of a solicitor’s request. Trade secrets need not be revealed in the public court record. Protective orders might be particularly helpful in divorce cases regarding sensitive business documents, client lists, or proprietary formulas.
Moreover, businesses can use their counsel to prepare summaries or redacted versions of documents that exclude the most confidential information but still comply with the law.
Protecting the Business from Internal Disputes
The spillover of divorce conflict into a business can be especially pronounced when the business is a family enterprise owned by both spouses, or one spouse or both own a stake in an enterprise in which they are actively involved. Business owners should have formal policies and protocols for decisionmaking and access to information, which might include appointing a third-party manager or neutral decisionmaker to handle sensitive issues and keep the business on an even keel until a divorce is resolved.
Another option is to create a board of directors or advisory panel if the business doesn’t already have one. A board can serve as an impartial governance structure to ensure that the business continues to pursue its goals rather than getting bogged down in internal disagreements.
Protecting Client and Partner Relationships
When couples separate, clients and business partners often worry about the stability and confidentiality of the business. Pre-emptive messaging to crucial stakeholders can also help. Business owners can reach out to clients and partners to assure them of confidentiality and continuity of the company regardless of personal circumstances.
This might seem like extra work, but if it helps to mitigate any concerns a client or partner might be having, it will help to keep their trust and loyalty intact through a potentially challenging time.
Conclusion
Business ownership can be a particularly fraught time during divorce because of the business confidentiality and trade secret risk. Business owners can help avoid the prospect of spilling sensitive information by requiring non-disclosure agreements, creating a protective corporate structure, limiting access to sensitive information, and making use of protective orders in court. Not only does this aid in preserving the business from disclosure, but it also provides the owner with the ability to maintain the trust and confidence of clients and partners. If you are a British business owner and are facing divorce, it is best to be strategic, seek expert legal assistance and be mindful of the impact that a divorce can have on your business.
