Running a business as a couple can be a wonderful thing, bringing the teamwork of your personal life together into the professional world. Family businesses are the lifeblood of the UK’s small business infrastructure, too – but such businesses can become anchors should you make the difficult decision to divorce.
Legal counsel is highly recommended, and practically mandatory, for any dissolution or divorce. However, the existence of a shared business renders all the clearer the importance of utilising a divorce lawyer with a strong reputation. Still, it can be helpful to gain some idea of what to expect when approaching divorce, in order to understand each step in the process. What might happen to a family business as a result of divorce?
Valuing the business
When divorcing, the court plays a heavy role in the re-allocation of money and assets between ex-partners. This is to ensure there is fairness in the divorce process, and to formally enshrine any agreements as to ongoing payments or other such agreements.
The specific decisions that a given court or judge makes regarding this distribution of assets will differ from case to case, both with regard to private assets and shared businesses (more on which later). However, one commonality across cases is the valuation of the business. In order to properly allocate funds and assets, the court needs to know the precise value of the business you share. Outright owners should organise this valuation, but either party can do so if the business is shared.
Valuation is only the first step, but it can still bring with it a unique subset of challenges. Divorce is not something into which many couples gladly enter, being a long, dry, administrative process whether the split is amicable or acrimonious. In the latter scenarios, and where the business is majority-owned by one person, disputes may occur over the outcome of a valuation.
With such disputes, it is generally recommended that further action is avoided where possible. The cost of a valuation alone can ramp up to four or five figures, dependent on the size of the business and the various streams by which it is valued. Re-valuing a business can add more costs and more delays into the mix, and should only be considered if some severe undervaluing appears to have taken place.
The court’s role
With the valuation complete, the court now has a more complete picture of the value shared between you. From here, precise decisions can be made to ensure the best possible outcomes for all parties. In many cases, decisions are made with regard to equity as opposed to parity; that is, rather than demanding the dissolution of a business to clinically split its value in half, the court will recognise alternative routes of ensuring value is allocated.
This might mean that the majority-owner of a business keeps the business, but by court order ‘buys out’ the other partner. It might mean that cash holdings or a certain sub-set of business profits are allocated one way, while ownership of assets is allocated another way. Outcomes will differ significantly from case to case, contingent on everything from business financials to individual situations and the existence of dependants.