17/06/2020

How are businesses affected by divorce? | Family Law

Couples hands with divorce agreement on the table

In divorce cases the presence of a business will often cause a great deal of concern and anxiety not just for the business owner but also for their spouse.  It is unsurprising that this can lead to confusion and therefore disagreement when dividing the marital assets.

Many people believe that if their spouse has not been involved in a business then it will not and should not be considered an asset of the marriage.  This assumption is incorrect.  The business will have a value and that value will need to be established so that it can be considered when dividing the marital assets.   It is worth noting however that a business is not a liquid asset and will be treated differently from capital such as property, savings and investments. 

Likewise where a spouse has started a business prior to marriage we are often asked whether that will mean that the business will be excluded from the calculation and division of the marital assets.  Whilst there may be an argument that the business was begun prior to marriage and therefore credit should be given to that spouse for their endeavours or that part of the business value should be ‘ring-fenced’ due to it being introduced to the marriage by one spouse, the Court still has an obligation to share the assets built up during the marriage which will include the business.  The starting point for sharing is one of equality.  

The nature of the business will also need to be considered as for some, the business will have only provided the family with an income stream rather than any other cash or capital value.  In cases where the business does have a capital value, that value will need to be established by an agreed accountant usually appointed on a jointly instructed basis and with the costs of the said expert being met equally between the parties.  This will require the spouse with the business interest to provide documents and information to the expert to assist in the valuation of the asset.  In addition to valuing the business interest it is normal for the income generated by the business to be assessed and for comment as to how any capital available could be extracted in order to fund a financial settlement between spouses.

Establishing the value of the business or one spouses interest therein does not mean that the business will have to be sold.  In fact it is rare that a business will be sold as a consequence of divorce proceedings.  Whilst the Court does have the power to order a sale of assets, including businesses, it is extremely rare primarily because many people including the business owner still rely on the business for a livelihood and therefore lifestyle. 

Another common misconception is that one spouse will be made to give or sell shares in the business to the other spouse.  This is not the case either.  As with a sale it is very rare for the Court to transfer shares or an interest in a business to the other spouse, particularly where that spouse has not been involved in the business.  To do so could potentially cause difficulties for the business for example, due to the inexperience of one spouse and the potential for conflict between the divorcing spouses.  The Courts preference will nearly always be to achieve a complete separation both personally and financially where at all possible.

A business within divorce proceedings can be complicated and requires expert advice and assistance.  For more information concerning this, divorce, financial remedy, and children matters please contact Philip Rea, Associate Director on 0121 227 3365 or e-mail PRea@thursfields.co.uk 

Philip Rea - Colour

Philip Rea,

Director, Family Law

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