Dividing Business Assets in a Divorce

Dividing Business Assets In Divorce is often stressful and complex.

An owned company is often amongst the most valuable resources considered during a divorce. It is understandable that you may have concerns about the division of company assets once you have separated legally from your spouse.

Furthermore, there are often deep emotions connected with Dividing Business Assets In Divorce, which you may have built over many years of hard work, and the changes being proposed may be very difficult to come to terms with.

At Clifford Johnston & Co, we provide practical, commercially minded advice to ensure the optimal outcome for the division of company assets in your divorce.

Will I lose my business if I get divorced?

If fairly Dividing Business Assets In Divorce is not possible, the court may issue a legally binding order that a company be sold.  However, this is quite rare, especially if the company is the sole or main source of income for one or both parties to the marriage.

If the assets are illiquid and difficult to distribute, they will try to find other ways to achieve a fair settlement.  For example, the value in the business could be offset against the value of other assets that are easier to sell or divide.

In circumstances where the sale of the business is considered necessary, the courts will usually try to minimise the immediate impact on the owner and any employees, by structuring the terms of the financial settlement to allow staged payments or adequate time to find a buyer.

How we can help

We recognise that third parties may be anxious with regards to their financial position within the company which is why we encourage you to contact us sooner rather than later to ensure the legal process runs as smoothly as possible.

We offer practical family law support and advice tailored to your individual circumstances to help remove some of the emotional strain of the divorce process.

Our team of leading divorce lawyers can help you achieve an outcome that is agreeable and fair to both parties, giving you one less thing to worry about.

How do we fairly divide our company in a divorce?

In the case of a limited company, you are legally allowed to reach a financial settlement without involving the courts and it is your choice on how to divide the company, providing there is a fair outcome to both parties and mutual agreement.

There are various options available to you when it comes to Dividing Business Assets In Divorce:

• Offsetting – Where one party transfers assets to the other, in return for keeping the business interests.
• Buy-out – If both parties have shares in a limited company, one partner could buy out the other
• Spousal maintenance – Where there is little capital value but reasonable business income, one partner could be paid ongoing maintenance
• Sell the business

What if we are unable to reach an agreement?

In the event of an unsuccessful dispute resolution, the court has the power to transfer company shares from one spouse to another, subject to any restrictions in the Articles of the Company.

If your finances will not permit a buy-out of one party, it is customary for the court to assist in the division of the business assets rather than forcing ex-spouses to continue working together as this is seen as unreasonable.

Usually, one party exits the company so there is a clean break, but some couples may wish to continue in business together. If so, a shareholders’ agreement will be required to ensure neither party is able to solely make future business decisions.

What happens when one spouse exits the company?

Specialist financial advice should be taken in the event of a transfer of business shares or a buy-out following a breakdown of the marriage. There will be tax consequences for both parties.

In these circumstances, a valuation of the company as a whole will need to be undertaken in order to determine the divisible financial assets.

How to value a business in divorce

The first step when dividing assets in divorce proceedings is to get an accurate valuation.  Supported by evidence from the accounts and possibly a statement from your accountant, we will be able to help you arrive at this valuation.

When a valuation is backed up with sufficient evidence, it is usually easier to reach an agreement, and an amicable agreement is always preferable. We are highly experienced at negotiating business and company valuations, and we’ll help things move forward as efficiently as possible.

If the valuation of personal property for divorce is challenged by your former partner, you may be appointed an independent expert, deemed to have been instructed by both parties, to provide a valuation.

The business valuation will be included as a part of the financial settlement in a divorce. 

Valuing a company in a divorce can be complex and will need to take in to account:

• Business income
• Business assets (property; machinery; stock)
• Value of any pensions

Valuation of business assets is often regarded as ‘risk-laden’ and can be less straightforward than other ‘safer’ assets such as savings or non-business owned property. It is for this reason we encourage you to seek expert legal advice.

What information is needed for a business valuation?

You will be required to provide the following information for the business valuation:

• Assets – at least two years’ accounts
• Cash flow – typically forecasting five years ahead
• Analysis of comparative business models – used if your business lacks assets or you cannot produce a sufficient cash flow forecast

If the company is small or both spouses agree to a ‘desktop’ valuation, this can be much more straightforward. In many cases, an independent valuation will be required to ensure a fair outcome for both parties.

How are business assets divided in a divorce?

After valuation, the ownership structure of the company determines how it will be divided by the court’s financial consent order. The business will be treated as a divisible marital asset if one or both spouses own it outright.

The value of the shareholding will be relevant in cases in which the party is a minority shareholder. In the majority of instances, the business will remain in the interest of the owner and the other spouse will be awarded maintenance payments or a greater share of the other marital assets.

My business partner is getting a divorce; will I be affected?

Generally, courts tend not to interfere with businesses when avoidable. In the event of your business being considered a marital asset in a divorce, courts have restrictions regarding how they can treat the division of assets. This is to avoid adverse effects for partners that are not part of the spouse’s family. Different options may be presented when dealing with family businesses.

There are, however, circumstances in which your business may be affected by the divorce settlement of an owner or shareholder. You can take steps to protect your business’s interest in a divorce, such as amending your shareholders or partnership agreement, and ensuring prenuptial and postnuptial agreements are in place.

Contact Us

Our team of divorce lawyers is proud to offer the highest standards of client care. We understand the emotional toll that a divorce can take, and the unique challenges of dividing business assets in divorce, but we will help you reach a clear and amicable agreement as swiftly as possible.

Our business divorce lawyers are based at both of our offices and their vast experience makes them an integral part of our team of Family Solicitors in Stockport & in Manchester.

With offices in Stockport (Heaton Moor) & Manchester (Burnage), our expert solicitors are easily accessible.  Our family lawyers represent clients not only locally and throughout Stockport, Cheshire, Lancashire & Manchester but also across the United Kingdom. You can count on us to help and guide you whatever your challenge or circumstance.

During the current Covid-19 crisis we can make arrangements to take instructions from you by telephone or video conferencing and will still be able to access the courts to deal with any emergency applications which may need to be made.