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How is my business treated in a divorce?

By Emma Lawler

Jan 28th, 2020

How is my business treated in a divorce?

You may be considering a separation or divorce or already going through one. If you are a business owner, you will no doubt be worried about the impact on your business. You will need to know how the family courts will deal with your business in a divorce.

You will go through a three stage process.

The first is an exchange of financial information, usually on a form called a “Form E.” As part of this process details relating to your business will need to be provided. Copies of your accounts for the past 3 years will need to be given along with details of your shareholding and whether you are owed any money under a Director’s Loan Account. One financial information has been exchanged, consideration will need to be given in relation to the issue of appointing an independent accountant to carry out a valuation of the business. Valuations are not needed in every single case as it very much depends on the nature of your business. If an accountant is instructed to carry out a valuation, they can also be asked to consider issues relating to liquidity and any other issues you or your spouse feels are relevant. A surveyor may also be appointed if your business owns property.

The second stage is the negotiation phase. There are various different ways to negotiate to include mediation, round table meetings and written proposals. Court proceedings are also an option if appropriate. Even if you do litigate, the court places emphasis on trying to reach an agreement throughout the process.

The final stage involves drawing up a court order or “consent order” if an agreement has been reached. This document represents a legally binding agreement between you and your spouse. You would then implement the terms of the agreement you have reached.

The court will need to know the current value of your business and any other relevant issues that may affect that value such as issues relating to liquidity and issues of taxation and whether any discount needs to be applied for a minority shareholding. It is possible for you and your spouse to both retain shares in a business following a divorce. This option usually only works if there is a degree of co-operation between you and a carefully drafted shareholder’s agreement to make sure both your interests are protected. The family courts can’t order your business to pay money to your spouse. However, the court can take into account the value of your business and order you to pay a lump sum. It’s then an issue for you to determine how to raise those funds from your business.

The family court will not want to ruin your business, particularly if it is the only source of income for you and/or your spouse. Settlements often have to be creative to take into account the need of the none-business owner and the remaining owner. If you are keeping a business in exchange for your spouse keeping other assets such as property or pensions, the court will take into account the risks you are potentially taking compared to your spouse in determining how the assets should be divided. Generally speaking, the longer the marriage, the more your spouse will be entitled to. Any settlement certainly needs to be capable of meeting your spouse’s income and capital needs, whether by way of a lump sum payment, transfer of other assets or ongoing maintenance.

It’s essential you take specialist advice in these circumstances. Please contact us on 0330 0947777.

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