November 30, 2021

What are the risks to business assets in divorce?

Matrimonial breakdown and divorce can be a challenging time, especially if you are a business owner. Separation can have an enormous effect, not only on the individuals involved and extended family but where there is a business, the consequences of divorce will affect the business and its employees too. When we advise our clients as to what would be a fair financial settlement, we must consider how the Court would approach the matter.

The Court is directed to Section 25 of the Matrimonial Causes Act 1973 and will consider a range of factors, including:

  • the needs of the party
  • the resources available to the parties
  • the standard of living enjoyed during the marriage
  • the income and earning capacity on the parties, both now and in the future
  • the contributions parties made during the marriage
  • the length of the marriage
  • any health issues of either party involved
  • or any other circumstances that the Court considers to be relevant, including Pre-nuptial agreements.

Business assets will be considered as a resource available to both or either party. Sometimes it is very much a family business where both parties have been involved. Sometimes there is a business in which one party is really involved, but the other party has shares or a small interest. 

Why do business owners need to value their business when separating?

Does the business have its own value or does it just produce an income? Some businesses have an underlying capital value but, in some circumstances, the business just produces an income and does not have its own independent valuation.

The Accountant that usually looks after the accounts of the business is a good starting point to produce a valuation, however, sometimes, if parties do not consider the Accountant to be independent, further evidence is required from a Forensic Accountant. Valuing a business is not a precise science. A Forensic Accountant will look at the structure of the business, the assets available to the business, the balance sheet, and of course, the full accounts and consider a value, taking into account a number of different approaches. 

What Orders can a Court make in relation to business assets?

A Court can order the sale of a business. Although this is uncommon in practice and often not in the interest of the parties. A Court can transfer shares, order a deferred lump sum from the sale of shares at some point in the future, order one party obtaining an income from their business to pay periodical payments, or divide all the assets of the parties in a way that takes into account that one party has income from the business or the value of the business.

It is a common occurrence that a party who is generally not involved in the business does have shares and the Court can order that those shares be transferred to the co-shareholder. There will be tax consequences that will need to be considered within any matrimonial settlement. It is uncommon for the Courts to transfer shares to someone who is not already a shareholder, as it would not achieve a full and final settlement and may impact the smooth operation of the business. There are also situations where a business has third-party shareholders and of course, any transfer of shares may be restricted by the company’s Articles of Association. 

Any action in respect of the business could also have an unsettling effect on employees of that business. It is often the case that further advice will be needed from an Accountant and further legal advice from a corporate and commercial or employment law perspective. At Holmes & Hills Solicitors, we are able to offer advice in all situations affecting a business and its ownership.

What happens if a separated couple want to continue to co-own a business?

It is possible that notwithstanding divorce, parties who have always worked together can continue to work together for the benefit of the business. Although challenging, this is still possible and an option for some parties.

Going forward, however, it is important that you have clear legal agreements such as a Shareholders Agreement, providing for how you will work together and what to do if there are disputes at some point in the future. Holmes & Hills' specialist divorce solicitors will work closely with the firm’s team of commercial solicitors to assist in these circumstances.

How can you protect your business assets when divorcing?

Consideration needs to be given when transferring shares to another party or making another party a Director when they are not actively involved in the business.

Business assets can be protected from divorce by:

  • Entering into a Pre-nuptial agreement prior to marriage
  • Entering into a Post-nuptial agreement after marriage

This is ultimately a contract between you and your spouse confirming how the business should be dealt with by the Courts in the event of divorce. The Matrimonial Court retains final jurisdiction; however, Pre-nuptial agreements and Post-nuptial agreements are a circumstance that the Court will take into account when looking at a matrimonial settlement. 

Are you a business owner thinking about divorce?

If you own a business, co-own a business, or are divorcing a small-business owner, Holmes & Hills divorce solicitors can help. If you would like any further advice or information in respect of business assets in divorce, as well as how to protect your business assets or negate the risks to your business during separation, please contact the specialist Holmes & Hills Family Law team.

Holmes & Hills have specialist solicitors who are consistently representing business owners or the spouses of business owners with divorce settlements.

What is the first step to getting advice?

Call us on 01206 593933 today to speak with one of our family law specialists
Or send an email.
Key Contact

Carol Toulson

Partner

cat@holmes-hills.co.uk

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