Divorce with a Private Business
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When the time comes to divorce, many couples find that the most valuable asset they own is their business. Valuing business assets on divorce and looking at their liquidity is extremely difficult and forms a key part of the financial proceedings and discussions.
Boodle Hatfield has extensive experience of helping clients to navigate the complexities of divorce with a business involved, including valuing the business and dividing the family assets in a way that is fair to both parties.
Frequently Asked Questions
Will our family business be taken into account in my divorce?
Yes. Business assets such as shares in a limited company, interest in a partnership and business assets of a sole trader will be considered to be part of your relevant assets.
How will I know how much the business is worth?
The valuation of business assets can be less straightforward than valuing other assets such as property, savings and so on (known as “copper-bottomed” assets). Business assets are often seen by the court as “risk-laden assets” which should be treated differently to the “safer” assets mentioned above. You will be asked to provide an estimate in your initial disclosure statement (Form E) and this should be backed up for example with a letter from your accountant and accounts for the company. In due course, if your estimate is not accepted by your spouse/civil partner the court may order an expert accountant to value the business on the joint instruction of both parties so as to provide an independent valuation.
How does the family Court approach family businesses?
If a business was inherited by one party, there may be scope for that party to argue that the value of the business should be ring-fenced as non-marital property. Likewise, if the business was set up before your relationship commenced, you may be able to argue that the assets were generated solely or mainly by your efforts.
However, if the business has been used as an income-generating asset which has sustained the spouses throughout the marriage, it will be harder to argue that it ought not to be taken into account. It is also common for spouses who are not directly employed in the business to argue that they have had a role in making a success of it, which will also require careful consideration by the court.
What information will I have to provide in relation to my business?
If financial remedy proceedings are issued, as a minimum you will be ordered to provide copies of the business accounts for the last two financial years as well as any documentation that is available upon which you have based your estimate of the current value of your interest, such as a letter from your accountant or a formal valuation, if available. You may also be ordered to provide further information such as company forecasts, profit and loss accounts, draft financial statements, incorporation documents, budgets, annual returns and so on.
Will my business be sold as part of my divorce?
It is rare that the court will order a business to be sold as a result of divorce proceedings, especially if doing so would remove the family’s income stream. However, the court does have the power to do so if necessary. Even if it is deemed necessary the court will usually try to minimise the impact such as by staging payments so as to allow you time either to come up with the money to buy out the interest of your spouse/civil partner or otherwise to find a buyer on the open market and avoid a firesale.
My spouse is the director and shareholder of a business but I am not, do I still have a claim?
Yes you do. Your spouse’s assets will be considered as part of the relevant assets to be considered by a court for distribution between you. Even if you have had no involvement in the business you may still have a claim.
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