Divorce and Business Assets: How does it work?

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Going through a divorce or dissolution of a civil partnership can be an extremely challenging and emotional time. However, it can become even more complicated if there are business assets involved in the marriage.

Our panel of divorce solicitors at Expert Family Law are highly experienced and knowledgeable surrounding divorce proceedings and deal with business and divorce disputes frequently. They can assist in the process of dividing assets in divorce and strive to ensure amicable outcomes for all our clients.

If you have any queries surrounding divorce and business assets then please do not hesitate to get in touch with our team today to find out how we can assist you.

How are assets divided in divorce?

In England and Wales (Scotland and Northern Ireland have different independent legal systems), the division of assets during a divorce is guided by the principle of fairness, with the aim to achieve a financial settlement that considers the needs of both parties and any children involved. Here’s how the process typically unfolds:

Identification and Valuation of Assets

First, all assets must be identified and valued. This includes property, savings, investments, businesses, pensions, and any other financial resources. Both parties are required to fully disclose their financial situations.

Assessment of Financial Needs

The court assesses the financial needs, responsibilities, and obligations of each spouse. This includes current income, earning capacity, property, and other financial resources each party will have after the divorce. The needs of any children are prioritised particularly their housing and educational requirements.

Principle of Equality

While the starting point for division is often an equal split (50/50), the final division of assets may differ based on several factors. The court aims to ensure parties receive a fair settlement, which does not always mean equally.

Factors Considered

The court considers various factors under Section 25 of the Matrimonial Causes Act 1973, including:

  • The age of each party and the duration of the marriage.
  • The standard of living enjoyed by the family before the breakdown of the marriage.
  • The contributions made by each spouse to the welfare of the family, including non-financial contributions like caring for the home or children.
  • Any physical or mental disability of the spouses.
  • The conduct of each party, if it is so egregious that it would be unfair to disregard it.

 

Divorce and business assets

 

There are several different types of business ownership, including limited companies, sole traders and partnerships, and going through a divorce as a business owner does not automatically mean your business is to be sold, as many are quick to assume.

Generally speaking, business interests are included in divorce proceedings and taken into account when it comes to the divorce settlement. This is the case regardless of if a spouse has never been involved in the business. It is still relevant to the division of assets as it is capable of being shared like many other significant assets such as properties and savings.

In England and Wales, it is at the court’s discretion as to how to divide the assets. In some cases, a court may award one spouse the entire business while granting the other spouse a greater share of other marital assets depending on the circumstances of the case, not to mention the personal wishes of the spouses involved.

Does the court have the power to sell the business?

 

Yes, the court can order the business to be sold, however, this is quite rare and depends on a number of different factors. Typically, a court will order a business to be sold if the assets of the business in a divorce can not be shared fairly.

If the court decides that selling the business is the best course of action then arrangements can be made to allow the business to be valued and sold at a fair value whilst structured financial payments are made to the other spouse.

How is a business valued during a divorce?

 

Valuing a business during the divorce process can be complex, and requires the expertise of a professional appraiser or single joint expert who can provide the relevant financial advice needed for splitting a business in a divorce. There are several approaches that can be used to determine the value of a business, including:

  • Asset approach: This approach involves undertaking a business valuation. This involves valuing assets such as property, equipment, and inventory, and subtracting any liabilities. This method may be most appropriate for businesses that have a significant amount of tangible assets.
  • Income approach: This approach looks at the income generated by the business and projects future earnings based on past performance. This method may be most appropriate for businesses that have a steady stream of income.
  • Market approach: This approach involves comparing the business to similar businesses in the same industry and using market data to determine a fair value. This method may be most appropriate for businesses that are similar to others in the industry and have a significant market presence.

In addition to these approaches, there may be other factors to consider when valuing a business, such as goodwill, intellectual property, and customer relationships. An experienced business appraiser can help determine which approach is most appropriate and provide a fair and accurate valuation of the business.

The value of the business is very important if it is part of the matrimonial assets, however, the value of the business does not automatically mean each spouse will get a financial stake in the business during a divorce. In some instances, the value of the business will be used to offset other assets to the amount a spouse would be due from the business value.

What about family businesses?

 

Having a family business can present its own challenges when a divorce arises. Some couples may agree to to carry on running the business as business partners once they are divorced, however some couples cannot see eye to eye which means the business is likely to suffer if the two ex-spouses aren’t getting along.

In cases like this, where the spouses cannot see eye to eye, the court would prefer a ‘clean break’, in which one spouse would regain control of the business and the other would receive financial compensation with others assets. This might also mean that one spouse transfers their shares to the other.

Is a limited company protected more in a divorce?

 

In England and Wales, the assets of a limited company are generally considered separate from personal assets, but how they are treated in a divorce can vary depending on the circumstances.

If one spouse owns and controls a limited company, it doesn’t automatically mean the company’s assets are completely protected from divorce proceedings. The degree of control and ownership will be scrutinised. The court looks at whether the company is essentially a vehicle for that spouse’s personal financial activities.

The value of the shareholding interest in the company is considered an asset of the party owning it. The court will assess the value of this interest, which can be complex and may require forensic accounting to determine both the value of the shares and any income derived from them, such as dividends.

While the business itself might not be divided or sold off, the value of the shares owned by the spouse may be considered in the financial settlement. The non-owner spouse might be compensated with other assets equivalent to their share of the value.

Courts are generally cautious about making orders that could jeopardise the future viability of a business, especially if it employs other people besides the spouses. They might avoid orders that would force the sale of the company or its assets.

How can Expert Family Law assist?

If you are getting divorced and are concerned about divorce and business assets, our panel of family law experts are on hand to provide legal advice. Our experience means we have a strong track record of getting fair and agreeable financial settlements for our clients during divorce proceedings.

We understand that divorce comes with many emotional challenges, and our experts aim to take some pressure off our clients at what is already an extremely difficult time. We can assure you that your case will be dealt with in a compassionate and understanding manner.

The solicitors on our panel can also assist you through the whole process of divorce, including the application, assisting with child arrangements, financial settlements and ancillary relief following the termination of your marriage.

If you have any questions regarding divorce and business assets then get in touch today using the form at the top of the page to find out if a divorce solicitor from our panel could help on your case.

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