On divorce, you and your spouse will have to decide how to divide your finances. If you can’t agree together, it may be that you need to ask the court to decide. For people who own their own business, or work through a limited company, there can be a lot of uncertainty as to what this will mean for them. Every business, and every divorce, is different but we try and set out some of the main points you should bear in mind.
Will my business be considered a marital asset?
During the court of divorce proceedings, the court will want to consider both parties financial resources. The starting point is that a business is considered to be an asset of the marriage. The party’s interest in the property must be disclosed during the divorce process and a value must be put on it. This is even if one party was never involved in the business. The court will want to assess the value of the business.
In some circumstances a party’s business may be considered a non-matrimonial asset. It may be arguable if the business was established before the parties were married, that the business would be considered non-matrimonial. However, if the business is ongoing throughout the marriage, it is likely that the other party is likely to be entitled to an at least a proportion of the value of the business. Whether an asset is matrimonial or non-matrimonial is considered case by case and depends on the circumstances of each case.
How will my business be valued upon divorce?
It is important for the parties to have any businesses valued when considering the separation of your finances. The most common approach is for the parties to jointly instruct an in independent accountant. They will consider the business structure to clarify who legally owns the assets of the business and any liabilities.
The accountant will take into account various factors when competing a valuation report. For example they will want to look at the assets that the business owns as well as how much the business earns and its profit. The account will also consider the options that are available to the parties to liquidize any capital and any tax implications. This is not the only approach of course, and what is relevant will depend on your particular circumstances. In particular, some industries have different standard approaches for valuing businesses.
Will my company have to be sold as part of my divorce?
The court does have the power to make an order that a party’s business is sold. However, it is unlikely that the court would make such order, especially if it is providing an income or if it would not be possible to separate the value of the business from the value of the party’s work for the business.
Depending on the structure of the business there are other orders that the court can make which are more practical. For example, if both parties have a share in the business, the court may order for one party to transfer their share to the other party in exchange. This could either be part of an overall offset of assets or in exchange for a lump sum equal to the parties share in the business.
How can I protect my business if I am getting a divorce?
Whilst it is not possible to not disclose your business interest during financial proceedings, it may possible to try and protect your business by way of agreement. Parties can do this by way of a pre-nuptial agreement, before the parties get married or a post-nuptial agreement, after the parties are married. This agreement can set out how the business should be dealt with in the event that the marriage breaks down.
Nuptial agreements such as this are not technically legally binding, they are very persuasive to a court upon divorce. This is especially if the agreement reached is fair on both parties and both parties had the opportunity to receive legal advice. Nuptial agreements like this are complex and it is advisable that both parties seek legal advice when considering having such document drafted.
If divorce proceedings have already begun, then the court have previously shown a willingness to try and leave businesses and their structure unaffected. Although this mean that the party may not need to sell or transfer shares of their business, it would usually mean that the other party would need to receive a lump sum or a larger share in other assets in lieu of this.