There are multiple financial factors to consider during divorce, and it is not unusual for business assets to be involved. In this article, we look at what that means and how the law treats businesses when dividing up matrimonial assets.
In most cases, businesses will be included within the pot of matrimonial assets to be shared within the divorce settlement, even if one party has had no involvement in its day to day running. This is because all interests and assets can be shared, and include the family home, any other properties, investments, savings, pensions, and business interests.
There are some exceptions, and it depends on the facts of each case, but generally, a divorce with business assets will result in the value being included within the overall pot, particularly after a long marriage, and where children are involved.
I am a sole trader; will this be included?
Business ownership not only includes sole traders but also partnerships, limited companies, and public limited companies. As part of the gathering of financial information, the business will need to be properly valued in order to understand how it could be shared between the parties.
Who will value my business during divorce?
Typically, businesses are valued for divorce purposes by independent accountants who are appointed jointly by both spouses. The accountant will take into account various factors, including any assets owned by the business, its earnings and profit, and the way the business has been set up. This enables the accountant to reach a valuation and consider the options together with any tax implications.
Whilst the value of a business will be considered, it does not necessarily mean a spouse will receive an interest in it, however, the value of the interest could be used to offset other assets, such as receiving a greater share in the former matrimonial home or share the income generated from the business.
What happens if we disagree on the business valuation?
As stated above, both parties should agree to instruct an independent joint expert who can provide an impartial valuation. If one party does not agree with the valuation, then they can ask their solicitor to look at the company’s books to see whether it is worth taking things further. A valuation should consider a range of elements, including:
- Total business assets, including property, cash reserves, and any stock
- Annual turnover and profit for both the current and previous financial years
- Expected profits based on any new contracts/business
- Business debts
If things cannot be resolved, then you may look into mediation or another dispute resolution method to help resolve any disputes regarding dividing business assets.
How are shares in a company dealt with during a divorce?
Shareholdings in a business are generally treated the same as any of the other assets to be divided during divorce. However, unlike property or savings, dividing shareholdings can have legal implications and there is no formula setting out what should happen. It is important to take into account the ramifications a transfer of shares may have on other directors, employees, and shareholders to determine the best solution.
Will I have to sell my business if I divorce?
It is rare that a business has to be sold during divorce. The court has wide-ranging powers and discretion when determining a settlement and will always try to keep a business from being sold where it can.
Can my business be ring-fenced in a pre-nuptial agreement?
Although it is possible to protect a business through a prenup or postnup, it depends on all the circumstances of the case and might be offset against other matrimonial assets to allow you to ringfence the business.
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