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Divorce for business owners: facts and considerations

Mar 4, 2024 | Uncategorised

When you get a divorce, your assets need to be divided. This can become complicated if these assets include a business.

If you find yourself in this situation, don’t panic. A good solicitor will be able to help you get the outcome you deserve, ensuring that your business’s assets are divided fairly.

Nevertheless, it’s a tricky area that could do with a bit more clarity. Even an amicable divorce can be stressful and the division of business assets can be fraught.

To that end, we’ve put together this jargon-free explainer article. We hope it helps you feel that little bit more confident about dealing with this issue.

Will I lose my business if I get divorced?

For many business owners or shareholders going through a divorce, this is the most important question.

The simple answer is that it’s rare. The court can order the company to be sold but only if a dead end has been reached with the division of assets – and if the business isn’t a main source of your income. 

The bottom line is that the court won’t let a divorce diminish a person’s standard of living. If the company does have to be sold, the court will offset the effects of this against other assets.

Why is the company structure important?

The structure of your business will determine how the assets are owned. In turn, this will affect how they’re split, if at all, in the financial settlement.

If you’re a sole trader, the business assets are yours alone. If you’re in a partnership, the assets are shared. If your business is a limited company, business assets are owned by the company, not by individual directors.

Is a business a marital asset even if only one spouse owns it?

Yes. However, the weight it carries in court will depend on factors such as when the business was acquired and how much each spouse contributed to its growth.

How are businesses divided during divorce?

The short answer is “it depends”. The bigger the business, the more complicated the process. It may be that lawyers and accountants will need to determine the value of the business and decide how it should be split.

In England, Wales and Northern Ireland, business assets can be considered to be matrimonial assets. In most cases, the business owner will be left with the business and the other partner will be compensated with other assets or maintenance payments.

This is a key point. Divorce doesn’t necessarily mean that your business assets are at risk. It’s unlikely that your business will be broken up or you’ll lose your share.

How is the business valued?

For a financial settlement to be made, the court will need to know how much the business is worth. If the business is co-owned, either spouse can arrange the valuation. If just one spouse owns it, they will take charge of the process.

Valuation is complex and requires advice from an accountant. It takes into account income, standard of living, assets, pensions, the company’s ownership structure and more.

The process can be expedited when both partners agree on the value of the business. This isn’t always possible, even when the separation is amicable.

In the event of disagreement or tension, expert legal advice can be a huge help.

Can you ring-fence a company?

Sometimes, yes. Companies can be ring-fenced if they were inherited or established before the marriage. However, this is unlikely to be allowed if the company supported both members of the couple during their marriage or civil partnership.

A business can also be ring-fenced via a prenuptial agreement or “prenup”. However, this agreement needs to meet certain requirements to be valid. If you do get a prenup, it’s highly advisable to get advice from an experienced family lawyer first.

How can you ensure business continuity during a divorce?

If the business is co-owned and co-run, decisions are typically made by both parties. If there’s a breakdown of communication between the couple, business operations can be disrupted.

If this happens, your best bet is to seek advice from an expert family lawyer. This person will be able to negotiate temporary arrangements to ensure that the business continues to operate during the divorce process.

What if other people are involved in running the business?

So far, we’ve been looking at situations where the business is split 50/50 between a married couple. However, it can be the case that one or both parties are minority shareholders. In this instance, the shareholding value tends to be treated as a marital asset in the financial settlement.

If one party wants to keep hold of their shares after the divorce, the shareholding value is typically offset by other marital assets. If for any reason this can’t be achieved, the shares can be sold and the cash split between the divorcing partners.

If this isn’t possible, the shares could be sold, or bought back by the company, and the cash shared between the parties.

What is a freezing order?

Sometimes, a spouse may try to devalue assets to stop the other from getting their fair share in a financial settlement. If this happens, a solicitor can help you to obtain a freezing order from the court. This is an injunction that stops your spouse from dealing with their assets until the settlement has been made.

How do I protect my business in a divorce?

The simple answer is to get expert legal advice. Having a trained professional onside to fight your corner can make all the difference, especially when the division of assets is complex.

Are you looking for support with dividing business assets in a divorce? At Milners Law, we have a team of experienced, tactful family divorce lawyers who can offer no-nonsense advice to help you navigate this tricky area. Get in touch to book a free, no-obligation consultation.

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