A business can be the most valuable asset and it is not surprising that “what will happen to the business?” is one of the first questions that business owners ask when their relationship breaks down. Divorce and finance solicitor Sasha Walton shares her approach to business and divorce.
All businesses are different and there is no “one size fits all approach”. The first thing that we try to do is understand the business – is it a Company, Partnership or is the business owner a sole trader? Are there other’s involved in the running or ownership of the business?
Valuing a business for divorce
Early on it is important to determine the value of the business. Sometimes the business will have very little value and it may be appropriate to view it as an income generating asset rather than an asset with a capital value. Other businesses have a very high capital value which may need to be valued by an expert. In some cases the Company Accountant can provide a valuation for negotiating purposes but such a valuation may not always be appropriate and a Single Joint Expert can be appointed to assess the value on behalf of the couple.
The history of the business can sometimes be relevant to what should happen to it, particularly if it is a long established family business of one party.
What Orders can a Court make?
The Court will want there to be a fair division of the overall assets of the marriage between the parties. Just because a business is in one person’s sole name it does not mean that the other party cannot make a claim against it.
One option is for a party’s interest to be offset – where possible a Court is often keen to off-set a non-business owner’s interest in a business by awarding them a larger share of other assets. This keeps the business with business owner. It is not without its risks though as this can result in one party gaining all of the “copper bottom” assets and the business owner taking all of the risk.
Income Orders – a Court can Order that income from the business is paid to the non-business owning spouse over a set period of time or indefinitely. This option is often used where off-setting an interest in the business is not possible.
Transfer of Shares – in some cases it may be appropriate for a transfer of shares to be ordered from one party to another.
Sale or partial sale – some businesses have assets which can be sold to release some capital but still enable the business to keep trading. A Court will usually be reluctant to Order a sale of the business as usually at least one party will be reliant on the income that the business generated. However, in cases where the Court deems it appropriate, it is within the power of the Court to order a sale.
See expert divorce and finance advice early
Discussing the various options early with the company’s Accountant is advisable and taking specialist advice from a Tax Expert can prove invaluable to help ensure that all implications of the outcomes that are being discussed are considered. If a transfer of shares is likely to be made there are Tax advantages to the transfer taking place in the tax year in which the parties separate.
If the parties are employed by the business then it is important to take Employment Law advice before there is any termination of contracts of employment to ensure that there is no breach of Employment Law.
How can I protect my business?
Entering into a Pre-Nuptial (before you get married) or Post-Nuptial (when you are already married) Agreement is one option. These can allow a couple to set out how assets should be divided in the event of their separation and divorce. It is important to note that Pre and Post Nuptial Agreements are not automatically binding on a Court. Various criteria have to be met for the Agreement to be adopted by the Court in the event of divorce. We can advise you whether such an agreement is likely to offer you the best protection.
Sasha Walton is a solicitor in our divorce and finance team. To get in touch to speak with Sasha about how divorce could impact your business please email [email protected] or call 01752 674999