While not always the case, in the event of a divorce it is common for a business asset – whether it is a private company, sole trader, interest in a company or shares in a limited company – to be considered part of the ‘matrimonial pot’ alongside the family home or a pension.
This means that, generally, the go-to approach by a court will be to split the value of the business asset between the parties (provided that the needs of the parties have been met).
In order to work out how to allocate or split a business asset, the court will need to have a clear understanding of the value of the asset.
How do I Value my Business?
During financial proceedings parties must exchange full and frank financial disclosure of assets. If you have shares in a business, you will need to disclose to the court and your spouse the percentage of the shares and their value, including documentary evidence.
Providing company accounts will assist in determining the value of a business. However, depending on the situation, it may be necessary to obtain a formal valuation of the business by instructing a single joint expert such as an expert accountant.
What Financial Orders can the Court Make?
Once the business has been valued the court can make various orders including:
- The sale of part or the whole of the business;
- The transfer of shares from one spouse to the other;
- The sale of shares;
- The business to be divided and for each spouse to retain a part of the business; and
- A lump sum payment from one party to the other enabling the paying party to retain their business interest.
How can I Protect my Business?
- Pre- / Post-Nuptial Agreement
If you have a business or a substantial interest in a business, you may need to consider entering into a pre-nuptial or post-nuptial agreement to ring-fence your business assets. Pre- and post-nuptial agreements are common tools used to protect family wealth. It enables a party to safeguard assets they brought into the marriage which can include inherited assets and business interests.
Whilst a nuptial agreement is not binding between parties, the court will uphold the agreement if it is freely entered into by both parties and the parties have had independent legal advice. Crucially, the agreement must be fair and account for each party’s needs.
- Is your spouse involved in the business?
Whilst involving your spouse in the business may be an efficient make of tax reliefs, involving them in the business may give rise to the argument that they have contributed to the business’ success. If you are considering taking this step, make sure that you have a comprehensive shareholders’ agreement setting out the voting rights your spouse has and ensure the articles of association contain pre-emption provisions enabling existing shareholders to purchase your spouse’s shares first.
- Keep the finances separate
Ensure that you keep clear financial records and avoid using business funds for the benefit of the family. This will not only complicate matters in the event of a divorce, but it can also provide a distorted valuation of the business.
- Seek legal advice
If you are in the process of separation or considering divorce and have business interests, speak to a family solicitor who will be able to advise your further.
About Raphaela Kohs
Raphaela Kohs is a Family Solicitor at London law firm, Lawrence Stephens. Having completed her training at a specialist international family law firm, Raphaela is experienced in advising international clients on a full range of family law matters such as divorces, complex financial and jurisdictional disputes and private children issues.
Raphaela’s aim is to work collaboratively with clients and, if appropriate, she makes every effort to settle disputes outside of court.
She is also a member of several legal networks and membership bodies, including Resolution and Women in Family Law, and is a committee member of the Junior Lawyers Division of the Westminster and Holborn Law Society.