Dividing Business Assets in Divorce Proceedings
When a marriage or civil partnership ends, the division of business assets can be complicated. Various factors such as, the type of business, contributions of each spouse, length of marriage, and financial situation are taken into account. There isn’t a single approach that can be applied so seeking legal guidance is important to achieve a fair outcome.
When a business is involved in a divorce, its widely considered as matrimonial assets and can be divided by the court, in England, Northern Ireland, and Wales. While Scottish courts only divide business assets acquired during wedlock. If one spouse founded and operated the business, the court may try to ensure they retain ownership. However, compensatory assets like properties, vehicles, cash, and investments may be required. In limited companies, shares may be transferred from one spouse to another if required. Although courts prefer not to sell off a business, it can happen.
Dividing assets in a divorce can become complex when a family business and shares are involved. Options include an amicable split, retaining shares as a ‘sleeping director’, buyout, selling shares to a different director, selling the business, or letting the courts decide.
To determine the value of marital assets, a business valuation is important in divorce cases and are often overseen by a forensic accountant on behalf of both spouses. An independent valuation is recommended and various methods can be used to determine value, such as, market, cost, income, comparison, or a dividend yield approach. The chosen method can significantly impact the estimated value of the business so seeking advice is essential. Full disclosure of a business valuation is required on Form E, alongside all other finances, incomes, revenues, assets, and liabilities.
Protecting a family business can be challenging, but there are ways to try to safeguard it before you are in the position of a divorce. These include utilising pre- and post-nuptial agreements, keeping company and household finances separate, and during separation, using offsetting tactics during negotiations. It’s important to note that pre- and post-nuptial agreements are not currently legally binding in the UK but may still be considered by the courts if they meet certain criteria.
Thursfields is a full-service law firm that handles businesses in divorce cases. Offering practical legal advice tailored to individual situations, including complex financial situations, the firm aims for a balance between a results-oriented and sensitive approach. To learn more about what happens to a business in divorce click here.