Dividing business interests on divorce or dissolution

If you run your own business and are divorcing your spouse or separating from a civil partner, as well as other concerns such as child maintenance, splitting the family home, you will understandably want to protect your business too. In all cases, it is worth seeking professional legal advice, but in this article, we outline some of the basic options you have open to you.

What is a business interest?

A business interest in a divorce could be company shares, a limited company, or shares in a partnership or sole trader business. They are deemed matrimonial assets in a divorce and will be considered when splitting all other assets.

Dividing a business

In general, the courts will leave a business with its owner, attributing other assets from the matrimonial pot to the other spouse. Often, this is the preferred option for couples, providing them with a swift and clear split. In some cases, couples may want to divide the business up, for example, with one spouse retaining shares in the business or having a share of the business income.  Also, if the business is jointly owned, one partner may wish to ‘buyout’ the other.

Seeking a valuation

In cases where both former spouses both have a significant share within the business or if they have complete ownership of it, it’s typical for the business in question to be officially valued. The valuer can be appointed by either of the spouses and paid for by both too. During the valuation process, the valuer will look at the business from several angles. They will consider the structure of the business; whether it is a sole trader company, a partnership organisation or a limited company, they will also look at the assets within the business, what the income is, sales forecasts, its liquidity and the value of the shares each partner has. At the end of their valuation, they will provide a report with the final valuation figure.

When a valuation is disputed

There can sometimes be differences of opinion when it comes to how much a business is worth. One partner, for instance, could feel the other has undervalued it deliberately. When this is the case, they have the option to request, via a court order, that more information is derived from the company accounts. In some cases, this could be the only way if your former spouse is not cooperating well, however, it can be an expensive path to go down so it’s important to seek expert legal counsel.

Protecting your business

·         Should I seek a prenuptial agreement to protect my business?

For high-net worth individuals or businesses, postnuptial and prenuptial agreements are helpful to have in place. Within one of these agreements, couples can outline how a business should be split in the event of a divorce. Although they are not legally binding, they are often considered by the courts so long as it can be demonstrated that both signing parties entered into the agreement willingly.

·         Shareholders’ agreement

A shareholders’ agreement sets out the specific ‘rules’ between the shareholders and defines how the business is run. The agreement will include details of who will manage the business and what the future of the business will look like. If you are married and run a business with your spouse, although shareholder agreements are not necessarily binding in the eyes of the courts, it can be worth having one in place which may, for example, stipulate restrictions on selling shares or offer first refusal on buying shares to other parties such as existing shareholders.

·         Keep finances separate

One of the areas which can prove complex is when business finances and personal finances are combined or linked during the marriage. If you want to help ensure that your spouse cannot have a claim on the business in the future, keep things as separate as possible in terms of your finances and do not involve your spouse in contributing to the business.

Conclusion

When a business is involved in a divorce, things can get complex, so, it is important to seek professional legal advice and understand more about your position and options from the beginning.