If you run a business with your spouse and are going through a divorce, alongside all the other issues, your business is likely to be uppermost in your mind. Particularly if you live ‘above the shop’, so to speak. Ending a relationship can be fraught with difficulty, but the thought of ending a business that also provides a roof over your head is complex. Here, we answer some of the most frequently asked questions.
What happens to a business in divorce?
As you’d expect, there is no template approach to dividing either matrimonial assets or a family business because each case will turn on its own facts. Depending on structure and ownership, the business is likely to be, at least in part, treated as a matrimonial asset and this includes any business premises you may live in. Where possible, assets allowing, the court will try to ensure the business remains with the original owner, but even where a business predates the marriage, the other party may still be entitled to a share of it.
Why is the business considered a matrimonial asset?
Businesses are considered in the same way as the family home, savings, and property. The law sets out that all matrimonial assets are divided in an equitable way, with all assets including a business, considered during settlement negotiations. This will include any business premises, including those you may also live in as your family home.
Many spouses don’t work in the family business, but they may have supported its owner in their role as ‘homemaker’ and taken care of the children while the other it built up. This is the reason a business is considered matrimonial property and gives both parties an interest in it as an asset.
How are business assets valued?
The valuation process can be complicated and will depend on factors such as earnings, assets, the business structure, whether it is a limited company or partnership. Valuing a business can be expensive and time consuming, with prices often running into thousands of pounds. The importance of seeking expert advice cannot be stressed enough if you are to be certain your assets are secured.
A specialist independent accountant should be hired in order to avoid biased and inaccurate valuations, or at least accusations of it, from your ex-spouse. This tends to happen when the business’s existing accountant has been called upon to provide their opinion, which often leads to legal challenges from the other side.
Various factors that contribute to a business valuation include (but are not limited to):
- Standard of living provided by the business
- Income generation
- Ownership of assets or property
- Company pension structure
- Evaluation of other shareholders with varying interests
Will I have to move out of the home we use as business premises during the divorce?
Both parties have the legal right to remain in the family home, regardless of whether the business and its assets are owned jointly or in one party’s sole name. However, if one party has suffered from domestic abuse, the offending party can either be removed by the police or prevented from living there for the duration of the divorce proceedings under the terms of an occupation order.
What can I do to protect the family business?
There are a variety of ways to protect a family business, such as entering into a pre-nuptial or post-nuptial agreement or drafting documentation in accordance with company law reflecting how the shares in the business are held and by whom. The extent to which such measures protect a business differs on a case by case basis.
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