Divorce and business
Latest Government figures show that 42% of people now get divorced. Frequently, one or both of them will have an interest in a business. Divorce can have a disastrous impact. It is therefore important to take good legal advice.
The law states that on separation, 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.
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 will 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.
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, 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. However, Courts prefer to leave the business intact. It is usually the main source of income for the family. The non business earning spouse 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. 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.
We have a range of family law services as well as actively encouraging all forms of out of court settlement including mediation and collaborative law. If you need help or advice on divorce or separation, please contact Richard Phillips on 01442 200104 or [email protected]
This article first appeared in the Business Eye June 2016 edition of the Hemel Gazette.