Home Business Insights & Advice How is business treated in a divorce?

How is business treated in a divorce?

by John Saunders
25th Sep 19 1:41 pm

Getting a divorce can be an emotionally draining and complicated process but when there is a business involved it can be even more involved and life changing. Family and Law expert Richard England, from Divorce Solicitors, Woolley & Co explains more:

When a business is involved, business owners will do their best to protect what they have and worked hard to build but there is an underlying fear that the spouse may be setting out to “ruin them” or try to get their hands on their assets. This is where divorce can become complicated.

Often a spouse suspects that their partner’s business is worth more than it actually is. During divorce proceedings, they don’t want to lose out on a potential long term income that might form part of a divorce financial settlement.

At the same time, the business owner does not want to find themselves in a situation where they must consider selling the business or deriving money from the business to fund the divorce or payment to the spouse. This could affect the business in the long term, limiting its ability to trade and any potential expansion.

When a spouse “goes after the business” they can be seen as taking an unrealistic, short-sighted approach. Although a business is considered to have value, it is usually one of the main incomes for the family unit. Obviously, by taking the business away, maintenance payments for the spouse will be affected which will then affect any children in the family. In the same turn, if the business is burdened with excessive borrowings, money might be short which will once again have a knock-on, negative effect in terms of maintenance payments.

Double accounting must be avoided if possible. The term applies for when a spouse will seek to claim against a partner’s share of the value of the business, this is often valued by an independent accountant. On top of this, the spouse may seek to claim against the income of their partner, when in reality the income is derived from the business itself.

One of the most effective ways is for both parties involved to agree on a valuation of the shareholding whilst still considering all the realities of the situation. This can include, for example, the partner having a minority shareholding only. If this turns out to be the case, it must be accepted that this will have an impact on the valuation of the business.

At the earliest opportunity, it is important to seek the income derived from the partner’s business over the last two years or so and to take aid a realistic view about future income. No matter if the company has had a good or bad year, a more long-term view has to be taken.

Once realistic figures have been agreed upon for the value of the shareholding and income, progress can now begin in terms of any capital payments that may be made regarding maintenance and shareholding, but this takes into account how much the paying spouse can afford.

The courts would prefer to not place the business or its owner in a position where a divorce may ruin a business. For example, if a payment to the spouse required the payer to sell off part or the business in its entirety than this would be considered non-beneficial for long term purposes. There are several ways the courts prefer to deal with this matter. With the overall goal to avoid the business owner selling a majority or the business as a whole unless there is a wish to do so.

Parties should work together to seek to reach an agreement to offset against other assets, for example, any savings or ISAs other the matrimonial home. This also includes pension provisions that the parties have built up over the years.

Overall we must remember that each party should share a realistic view of the value of the business and should work together to resolve the discussion so that the business owner can continue to generate an income in the future providing a stable maintenance payments to the other spouse or supporting children through a steady income. This will lead to both parties leaving with a successful financial settlement.

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