When a couple decides to divorce, there can be a lot of assets to divide. Whilst many only need to worry about what happens to the house and the car, and who wins custody of the kids and the dog, it is important to know whether your company can be drawn into things. Can your business be on the table when it comes to divorce negotiations? Does your spouse really have a claim over your company?
Protect your business during divorce
We all know, that when the decisions are made in a divorce, all personal finances have to be declared, and if you are a business owner, your company can form a key part of the proceedings. Business interests are generally considered to be matrimonial assets in England, Wales and Northern Ireland and will therefore be added to the pot. However, in Scotland, this is only the case if the business was acquired after you were married.
What type of company do you own?
The way that your company is set up will play a large part in how assets are determined. The most common scenario is that you own a limited company. Alternatively, you may be classed a sole trader or one section of a partnership. Shares in a limited company can be considered to be an asset and may therefore become part of the financial wrangling. This is also true of any assets owned by a sole trader or proceeds from a partnership.
When you started that business can be crucial to the arrangements though. For example, if you owned the company before you got married, it may be possible to argue that it should not be considered to be a marital asset. However, it could still be included if it has generated income which has allowed you as a couple to maintain your standard of living.
Determining how a company should be divided can be complicated, and if you and your partner can come to a fair and amicable agreement, it is unlikely that courts will interfere. You could look at offsetting, which means giving your partner other assets that are of equivalent or greater value than your shares. You could also consider a buyout, whereby one partner buys the other one out of the business.
If you have successfully lived off the income of the business, but it has very little capital value, a form of spousal maintenance can be put into place. This means that you agree to pay your partner an ongoing amount from the business whilst still retaining ownership.
Sadly, if no other agreement can be reached, it may become necessary to sell the business entirely.
Valuing a business
A partner claiming a share of a business is one thing but deciding what that is worth is quite another. You will need to get a fair and accurate valuation of your business to ensure that any settlement that is reached is realistic. Any attempts to undervalue your business at this stage can leave you open to further claims in the future.
The first thing to look at with any business is its assets. You will need to look at what the business owns and at least the last two years of accounts. It is also necessary to analyze the cash flow of the business and to attempt to forecast what this might look like five years into the future. It is important to analyze other similar business models which can give an indicator of what your business might be worth even if you cannot produce a forecast or lack assets.
Whilst you may feel comfortable producing this on your own, you need to ensure that it has all been done correctly. Employing professional financial advice can be important when it comes to protecting the outcomes for both you and your partner. Depending on the size and complexity of the business, it might be worthwhile considering a full forensic account.
If you feel that the valuation of a business is not accurate, or that one party is not cooperating, it is possible to dispute it through the court.
How much can a spouse claim?
Just because your partner makes a claim for your business, it does not mean that they will immediately be entitled to half of everything. If they have no interests of their own in the business, the courts are often reluctant to disrupt a business if there is another option open to you, and so all avenues should be explored thoroughly. A court is very unlikely to try and force the sale of a business, especially if it has been responsible for providing a family income as this could leave both parties worse off.
Can I protect my business from a divorce?
No happy couple likes to think that the day will come when they split up, but as a business owner, this might be something that you will have to consider. Whilst pre-nuptial and post-nuptial agreements are not technically legally binding, they can hold some weight in court if they have been signed with both parties having received independent legal advice. These agreements can set out how business interests should be dealt with if the relationship ends, whether that is how it will be split or that it should be excluded from negotiations.
Using your family home to secure business assets makes it far more likely to be included in a divorce settlement, so finding other forms of security can be forward thinking. Many business owners often appoint their partner as a director or give them shares for tax reasons, but this does mean that they have an interest in your business when splitting up.
In a divorce, everything you own must be considered in order to reach a fair financial agreement, and so that means your business will become part of that battle. The courts will usually try to ensure that you retain control of your business, but you will still have to consider how your partner can receive an adequate amount in compensation for doing so.