Whether you’re getting a divorce or dissolving a civil partnership, if you or your partner has a business, then it’s helpful to know more about how they are handled in proceedings.
The courts’ stance on businesses in divorce
In England, Wales and Northern Ireland, businesses are generally viewed as a matrimonial asset, and as such, will be considered within financial proceedings. In Scotland, business interests will only be considered an asset if they were acquired after a marriage, or civil partnership began.
If you are concerned how splitting up could impact the future of your business, it’s reassuring to know that certainly in the first instance, the court’s rule of thumb is to leave businesses with their owners. Instead, they often opt to compensate the other party with a larger share of other assets. For example, they may choose for you to retain the business in exchange for your former partner receiving a greater share of the family home.
Getting your business valued
Understanding the value of a business is important during a divorce or dissolution. If there is one sole owner of the business, they will usually have the responsibility of appointing a valuer or accountant, however, professional valuers can also be appointed jointly by parties. The valuer, often a forensic accountant, will look at the comparable sale value of the business, P&L records, tax returns and other financial documents to reach a valuation.
Different business structures
Determining how businesses are split depends on their structure too. If it’s a Partnership business or Limited Company, then there could be other third parties with interests in the business too, with any transfers of shares impacting them. If all the shares are owned by you and your ex-partner, then matters are less complex. For sole trader companies, there is just one owner with no other parties having shared interests in it, often making valuations more straight forward.
Business shares in a divorce
Business shares are also dividable and will need to be valued in a divorce or dissolution. Typically, the courts will veer away from having to split shares, granting other matrimonial assets to the other spouse. However, the courts do have the authority to order the transfer of shares.
Protecting your business during divorce
Although it is not usually possible to exclude your business from financial settlements, there are some preventive steps you can take. For instance:
- Arrange a postnuptial agreement between you and your spouse before you divorce or dissolve your partnership. Similar to a prenuptial agreement, this allows you to outline exactly what happens to your business in the event of a divorce, while you are still married.
- Keep things separate on an ongoing basis by ensuring your company finances and personal/family finances are distinct from each other, and, as much as you can, do not involve your spouse/partner in the business to the extent whey they can claim they have contributed to it.
- Consider putting Shareholders’ Agreement in place if applicable to your business. This could include enabling shareholders to buy your shares in the event of a divorce, for example.
A final point on dividing business interests
It’s wise to consider your business activities as early on in your partnership or marriage as you can. Asset transfers or moving money during a separation to lower its value is likely to be deemed unfair by the courts and you could be penalised for it. It’s important that both parties provide full financial disclosure detailing all the assets you own and any liabilities you have.