Dealing with business interests on divorce

When dealing with the finances upon divorce, all assets need to be taken into account including any business interests. It can be particularly contentious when this includes interests in family businesses which have spanned generations. Business interests are likely to be regarded as matrimonial assets and therefore there are circumstances when their value can be added to the matrimonial pot. 

Business Valuations

It is usual for a business to be valued by an independent accountant or a forensic accountant in large or more complex cases. The exceptions when a valuation is unlikely to be required are:

• if the business is particularly small, meaning the cost of a valuation would not be proportionate;
• the business is an income producing mechanism for one spouse or the family and holds little to no assets;
• the business interest is as a sole trader; or
• the business interest is a minority shareholding in a quoted company.

The appropriate method of valuation can vary depending upon the circumstances; an earnings based valuation is the most commonly used valuation technique when valuing ongoing trading companies, however a net asset valuation may be more suitable for a property investment company. Such valuations are treated as a guide rather than definitive absolutes.

There can be tax implications for transferring shares or extracting money from a business to fund a settlement and a tax expert should be instructed to advise the most tax efficient method of raising capital from a business.

Court Powers

The Court has a wide range of powers to order the sale of a business or the transfer of shares from one person to another, subject to any restrictions in a shareholders agreement. Courts however prefer to leave businesses intact and it is possible for both spouses to remain involved with the business if there is a large degree of cooperation, although a new shareholders agreement or partnership agreement would likely be required. A spouse with less involvement in the business may be able to offset their business interest by receiving a greater share of the other assets, such as the home, investments and pensions.

It is less likely the Court would order a business to be sold if there is third party involvement with the business. Another consideration may be the structure and nature of the business i.e. whether it is a limited company, partnership or a company registered in a different jurisdiction.

Protecting Business Interests

If you have an interest in a business, and are getting married, it is worth asking your fiancé to sign a pre-nuptial agreement. A pre-nuptial agreement can protect your business in the event of a divorce, provided the overall agreement is fair and meets the other person’s needs. To learn more about pre-nuptial agreements, click here.

We have a team of family lawyers who are experts in dealing with finances on divorce when business interests are involved. If you need help or advice on divorce or separation, please contact us today.