Going through a divorce is a stressful time for everybody. However, it can be especially so if you are a business owner, either with your spouse or without.
Protecting your assets will be very important to you so you will likely be concerned at how your divorce will impact your business.
As a reminder, all assets owned by either party, whether it be the family home, other properties, savings or pensions, can be divided by the court during a divorce. This includes businesses or any business interests.
At Brown Turner Ross, our team of expert divorce law solicitors are experienced in managing divorces for business owners and can help you secure your assets and retain control of what matters to you most during a divorce.
Dividing assets in divorce
During most divorces, the courts will aim for a 50/50 split of all matrimonial assets based on the sharing principle. This split can be weighted more to either side depending on factors such as childcare, healthcare, or any other responsibilities that may limit earning potential.
If, due to these factors, the court cannot establish a division of matrimonial assets that would be fair to both parties, then non-matrimonial assets may be included in the financial order. It is up to the discretion of the court as to how all assets are weighted and eventually divided between both parties.
It is possible for you and your spouse to reach your own agreement outside of court on how your assets will be split, provided that it is fair and both parties received independent legal advice. Once you have drafted your own agreement, be sure to have the court approve it through a consent order to make it legally binding.
How to value a business divorce
A business valuation can be quite an expensive task but it is important that you receive an accurate report on what a business is worth, whether the business is shared between you and your partner or privately owned by just one of you, to ensure the divorce is fair.
The most common method of valuing a business during a divorce is for both parties to instruct a single impartial financial appraiser to act as a single joint expert. This is far less expensive and less time consuming than each party instructing their own financial appraiser.
A financial appraiser will look at all business assets, earnings, and how it is structured to come up with a precise, up to date valuation that takes into account profit that is expected in the future.
Can I sell my business during a divorce?
Yes, you can still sell your business if you are going through a divorce. As a sole business owner, going through divorce proceedings does not impact on the actions you can take in regards to your business. However, the profit from the sale may be treated as a matrimonial asset and therefore your spouse could be entitled to compensation.
If the business is owned by both you and your spouse then you will need their consent to sell the business.
Can I start a business during a divorce?
Yes, you can start a business during a divorce. However, it may be included as part of the matrimonial assets even if you have been separated before starting the business.
From start to finish, a divorce can potentially last over a year. During this time, financial positions can change and opportunities can arise which may lead to the ownership or shareholding of a business.
If you want this business to be ringfenced from your divorce settlement then you will need to seek legal advice particular to your situation as it can easily become complex.
A Separation Agreement may be able to prevent your spouse claiming any part of your business, yet they would need to agree to this after receiving their own independent legal advice.
Can I lose my business in a divorce?
The courts prefer to leave the business assets to the business owner in a divorce and compensate the non-business owner with a higher share of the other, more liquid assets to offset this.
However, if the only way to achieve a divorce that is fair for both parties is to sell the business the courts do have the power to make this happen.
Company types
There are multiple ways that a business can be structured and this affects how it is treated during a divorce.
If you, your partner, or the both of you are the owner(s) of the business then you will likely have a greater insight into the structure of it compared to if you are only on the outside looking in.
Below are several ways a business could be set up and information that is relevant for each of them when considering them with divorces.
It is important to keep in mind that the value the court assigns to a business of any type may not be treated as equal to the weight of other, more liquid assets.
Sole trader businesses in a divorce
Sole trader businesses have an owner who is liable for both the business’ assets and debts. This is the easiest business to value during divorce proceedings as there are no other shared interests in the business aside from that of one of the individuals being divorced.
Valuing a small business
A small business can be easy to value as the finances, assets and debts are easily discernible and applicable to an individual.
For small businesses, you and your partner may be able to agree on the value of a business without the help of an independent financial appraiser as your family will likely know a great deal about the workings of the business.
Still, it is advised to seek independent financial advice before agreeing to any formal valuation of your assets during a divorce.
Business partnerships in a divorce
Business partnerships are harder to value than sole trader businesses as the percentage share would have to be worked out and applied across all of the business’ assets that the divorcing party has shared ownership of.
How to value a business partnership?
Business partnerships may need to be professionally valued by a financial appraiser to work out what the business is worth as well as what the individuals stake in it is worth.
There are many ways businesses can be valued including earning multipliers, discounted cashflows, and asset-based valuations.
Valuations will also take into account growth potential and any intangible assets before coming up with a final sum.
Limited companies in a divorce
Limited companies can be easy or difficult to assign a value to during a divorce depending on how many owners there are and what percentage share of the company the individuals being divorced own.
Is a limited company protected from a divorce?
The court will take as much action as they can to limit the impact of the divorce on other shareholders of the business. However, the court can rule on the sale or transfer of shares of a limited company during a divorce if it is necessary to achieve a fair settlement.
Divorce and business solicitors
There are many factors that can make your divorce complex when a business is involved. Therefore, it is strongly advised that you seek legal advice from experts before you end up losing control of any important assets. At Brown Turner Ross, we work with you to keep your business out of your divorce as much as possible in order to ensure that you retain ownership and control of your company and its assets. Find out more by getting in touch today.