How a couple’s assets are to be divided is often the most difficult issue to resolve when a couple is going through a divorce.
Businesses (which include limited companies, partnerships and sole traders) form part of the assets to be shared on divorce and will be a central consideration in the negotiations and any financial proceedings. It is therefore very important that if you are going through divorce or contemplating separation, where there is a business involved, that you seek expert legal advice from a family lawyer. This will enable timely consideration of your particular circumstances and help to ensure that the best outcome is achieved.
Where there is a business, alongside the more usual considerations given in respect of the family home, investments and pensions, there must be careful exploration of the nature of the business, its value (if any), and the income it generates.
There are a number of points to think about.
Early consideration should be given to the need for a valuation of the business. If the business produces an income stream only and there is effectively nothing of value to sell, then a valuation will not be necessary. In these circumstances, depending upon the level of income generated, it may however be relevant to consider sharing the income stream by way of a Maintenance Order or conversely obtaining a Clean Break Order to prevent future financial claims being made.
A valuation is however likely to be required if one spouse has a significant shareholding or owns the business outright and where there is a sizeable turnover and profit.
Valuing a business is not straightforward and it would be usual to instruct an independent expert accountant jointly with your spouse.
Once a valuation is obtained, it is not as straightforward as adding the value in with the other assets to be divided between the parties. This approach is too simplistic and does not recognise the risk laden nature of some businesses. The capital value of business assets is not necessarily the same as property or money in the bank and this should be factored into the negotiations and the terms of the financial settlement. This is particularly relevant if the business is to be retained by the owning spouse with the non-owning spouse receiving a greater share of the other property or investments owned outside the business by way of compensation.
This is a complex area of law and if you are dealing with relationship breakdown, seeking early legal advice from a specialist family lawyer is important and more likely to enable you to resolve the arrangements constructively and without unnecessary legal costs being incurred.
For further advice, please contact Alison Winterbottom at our office.