Dealing With Business Assets in Divorce or Dissolution of Civil Partnership

Often, the most complicated aspect of a divorce for a couple is dealing with financial arrangements. Where business assets are involved, this can become even more challenging if not dealt with correctly. This blog does not deal with unmarried couples as the situation is different; please contact us to discuss on 033 344 6302 or info@blanchardslaw.co.uk to speak with one of our specialist solicitors, if this is your situation.

Valuing the business

Alongside the divorce process, often married couples or civil partners will need to resolve their financial matters. This can be done voluntarily through solicitors or mediation, or through a court process in what is known as “financial remedy proceedings”. There are several stages and hearings in financial proceedings. However, whether you decide to go down the voluntary process or the court route, it will still be necessary to establish all of the  assets and their values, so that negotiations can take place for an agreed financial order which brings to a close all future claims between spouses. 

When a couple share a business asset, the first step is to obtain an agreed valuation for the company, or interest in the company. The business valuation will be required to complete the Forms E, which are the documents each spouse or partner should complete which sets out their financial disclosure.“Disclosure” simply means proving open and honest information about your finances.

Depending on the size and nature of the business, divorcing spouses or civil partners may elect to instruct a single joint expert (SJE) to generate an independent valuation of the company. A single joint expert (SJE) in this situation would usually be a specialist forensic accountant, who would be jointly appointed by and accountable to both partners equally. 

The accountant will produce a detailed independent valuation report for both spouses/partners to consider, and then both of you will have the opportunity to raise questions to the accountant about the business valuation and the reasoning used to reach the net figure.  Alternatively, and sometimes in the case of lower value business interests, a divorcing couple may decide to request a valuation from their own accountant, who may be familiar with the business already. 

Both of you must be in agreement to instruct a jointly instructed accountant. If one party refuses to instruct an independent expert for this purpose, then the other person may decide to make an application to the court for a report within financial remedy proceedings. It will then be up to a judge to decide whether this is appropriate and give directions accordingly. 

 

How is the business divided?

Once there is an agreed valuation, there are a few ways of dealing with a business in divorce, namely:

1. One party retains the business.
2. Sale or transfer of the business.
3. Both spouses retain their interest in the business following divorce.

There are several factors which will influence how the outcome consequent to divorce is decided. 

Who founded the business will be considered. If one spouse established the business, and was also more involved in it, or was responsible for its acquisition, then this will be taken into account if they wish to retain it, particularly if that is their main source of income. If the business is a family business, it is also more likely that the business will stay with the spouse whose family founded or previously owned it due to the personal connection. 

When the business was founded is also a relevant factor. If the business was established prior to the marriage, then it may be considered that it should remain with the person who founded it following separation. However, the courts may look at how much the business has grown during the marriage. If the business has grown significantly during that time, and particularly if it was a long marriage, then a court may attempt to determine what proportion of the business should be considered as ‘matrimonial’ (i.e. belonging to both of you; rather than just one of you) and would consequently be available for sharing between you in a financial settlement. 

Exceptional/Stellar contributions to the marriage may also be considered, albeit rarely; for example if one party had very specific expertise which allowed the business to grow, made sacrifices which increased the value of the business or spent more time working for the business. However, if one spouse gave up their career to be a home maker and raise the children, whilst the other focused their efforts on growing the business, the home maker’s contributions will still be considered as part of the financial settlement, as these allowed the partner working on the business to focus their energy there and allow it to increase in value. That said, if they were not involved with the business, it is more likely that their claims will be offset with other matrimonial assets.

 

If there are sufficient alternative assets available to the spouses to meet their needs, or in the case of a short marriage, then it may be possible to ‘ringfence’ an asset and exclude it from the so-called matrimonial ‘pot’. It may also be possible for one person to retain the business and buy out the other spouse’s interest with other assets, such as property, cash, investments or pensions. Where possible, it is preferable for former spouses not to remain as co-directors or majority shareholders of a business after divorce. This is simply because it may lead to disputes and litigation, which the family court will seek to avoid.

Whilst the courts prefer a financial ‘clean break,’ meaning that both spouses can cut all financial ties to each other following a divorce, if both are significantly involved in the business, depend on their income from it, or there are not enough alternative assets to buy out the other party’s shareholding, then it may be determined that both spouses retain their interest in the business and continue to take income from it. There are ways of securing a future clean break, perhaps by an agreement in a financial order for one spouse to purchase the other spouse’s shares, either at some point in the future or gradually over time with periodic payments. Alternatively, there may be a forced sale by the court if it is required for the spouses to meet theirs and the children’s financial needs. This is not usual; as the court is of course aware that to ‘kill’ a business is to deprive both of you and your family of a future income and livelihood.

Businesses are complicated. We are here to help and have a huge amount of expertise in cases such as yours. If you would like advice, please contact us on 033 344 6302 or info@blanchardslaw.co.uk to speak with one of our specialist solicitors.