Latest Government figures show that 42% of people now get divorced. Frequently, one or both partners will have an interest in a business. Divorce can have a disastrous impact. It is therefore important to take good legal advice.
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The law states that on a divorce, all the circumstances of the case must be taken into account. This will include all assets including the business, incomes and earning capacity. The Court has a wide discretion to do what it considers to be fair.
The starting point for dividing assets is equality but fairness and needs may dictate otherwise. It may for instance be that the business has been within the family for generations and is not subject to an equal division.
Unless it is a small income producing business, it is usual for the business to be valued by an independent accountant. In large or more complex cases, this can be carried out by a forensic accountant. There are different valuation methods depending on the type of business. Usually though a valuation will take into account sustainable profits having regard to an average of the last three years profits and forecasts. Our family law specialists at Machins are experienced in dealing with businesses of all sizes and have a wealth of accountancy contacts who can assist and advise on such matters.
Some may be surprised to learn that the Court is able to order the business to be sold. It can also order shares in the company to be transferred from one person to the other as part of the divorce, subject to any restrictions in the shareholders agreement. If there is a large degree of cooperation, both spouses might remain in the business. A new shareholders or partnership agreement is likely to be required. Being an all-service firm means that we have specialist commercial lawyers on hand who can advise and assist alongside our experienced family law team. Where there is a business involved, such cooperation between experts can be invaluable.
In many cases, Courts prefer to leave the business intact. It is usually the main source of income for the family. The spouse who has not been as involved in the business can often be compensated by receiving a greater share of the other assets such as the home, investments and pensions. She/he may also receive maintenance. Alternatively, it is sometimes possible for a business to raise money because it has surplus capital or it can borrow funds.
It becomes more complicated if the business is owned by several people. It is less likely the Court would order the business to be sold or money raised against it in such circumstances but the divorce may be a source of anxiety for the other business owners. If a business person is looking to get married, it is certainly worth asking his/her fiancé to sign up to a pre-nuptial agreement. This can protect the business in the event of a divorce, provided the overall agreement is fair and meets the other person’s needs.
It can be very expensive and time consuming fighting about these issues. It is much better to try and reach a fair outcome and early advice from one of the Machins family law specialists will help to ensure that the right approach is taken.
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