Experiencing a divorce when there’s a business involved raises many questions. For example, you may wonder if you are able to keep control of your business following a divorce, or how much you will have to pay a spouse so they are no longer a part of the company. You may also question how much you are entitled to if you let your partner keep the business. We examine the various ways in which businesses are divided to help put you in the know.
The basic financial principles of divorce
Courts in the UK will begin by aiming for a 50/50 split of all financial assets. However, several other determining factors will then be brought in to the equation that will affect this weighting. For instance, children whose financial welfare needs to be considered, whether or not either party has medical problems, how long the partnership lasted and what each party has access to financially.
Will I lose my business?
It is not the primary aim of the UK courts to sell businesses in divorces, in most cases they will look to keep the business with its owner, for example, offsetting its value against other matrimonial assets. However, it is possible especially if there is no way to divide assets. In these cases, the courts will attempt to apply financial settlement terms that enable periodical payments so the party holding on to the business has time to raise the necessary funds together to buy the other party out.
How are the assets divided?
The guiding principle of a 50/50 split is a starting point for the courts, regardless of who set up or runs the business. This is usually because a business is considered to be an income for the family unit, and it is often the case that the spouse who was not involved in the business was contributing in different ways to the marriage, for example, running the household, thus allowing the business to run effectively.
*Note that in Scotland, the rules are slightly different in that companies that were set up before you were married are not considered in a divorce.
Transferring the business
Divorcing spouses understandably do not want to work at the same company together, so, when they cannot agree between themselves, it’s logical to the courts that a division of some sorts needs to occur. If a company’s incorporation policies allow for a transfer of ownership, the court can order this, thus giving one party sole ownership and resulting in a clean break order. This transfer is enabled through one party buying out the other’s shares.
If this is not possible, then a new shareholder agreement can be compiled detailing how the business will be managed following the divorce, but it can cause significant problems in the effective running of a business.
Valuing the company
Knowing the value of your business is essential as this detail is required when you complete your disclosure statement at the beginning divorce proceedings. Often, couples will agree on the valuation but if not, you can hire a professional for an accurate value. Contributing factors include whether there are any pension schemes attached to the business, what assets the business has, how the company is structured, and the liquidity of the business’ assets. A forensic accountant will look through all the financial information relating to the company, including accounts, balance sheets, annual returns and P&L accounts and forecasts.
Conclusion
While considering the various aspects of divorce and business, you will also need to ensure it stays running. If, like most businesses, yours requires both parties to consent to decisions, this can make things very difficult. Your first port of call therefore needs to be with a qualified family lawyer.
