Divorce and Business Ownership: Businesses as a Financial Resource

Divorce and business ownership can be a complex combination, especially when a company is one of the most valuable assets in the relationship. Whether you’re a sole trader, shareholder, or part of a family-run business, understanding how your business interests are treated during divorce is essential to protecting your livelihood and reaching a fair financial settlement.

In this guide, we’ll show how business interests are treated in financial remedy proceedings. We’ll also cover any orders the court may make and strategic considerations which could be very important to the overall outcome.

Business assets were once seen as the golden goose which would never be sold on divorce. Now, that is not always the case. But taking the correct advice can ensure that what may be the key family asset is dealt with fairly and pragmatically, often for the benefit of the whole family. Ensuring the right legal, business and tax advice is accessed can be key to the right outcome. Our expertise can mean that divorce and business doesn’t always need to be a headache.

In England and Wales, your business (or your interest in a business) is a financial resource which will be considered together with your other financial resources when a fair financial settlement is considered. At one time it was fair to conclude that a business would never, or extremely rarely, be sold in a divorce case. That was laid to rest as long ago as 2001.

However, when Coleridge J stated in the case of N v N (Financial Provision: Sale of Company) [2001] 2 FLR that “I think it must now be taken that those old taboos against selling the goose that lays the golden egg have largely been paid to rest; some would say not before time. Nowadays the goose may well have to go to market for sale.”

The starting point for any fair financial settlement on divorce or dissolution of civil partnership is to understand whether either party has any relevant business interests. In some cases, it will be very obvious, with the family business being at the centre of the family finances. However, in other cases, the interest might be less central, but it is no less important to ensure that full information is obtained and provided so the financial settlement can take this into account.

How relevant it is and whether or not it is matrimonial or non-matrimonial will depend on the circumstance in each case. It may have started as non-matrimonial, for instance set up long before the relationship started or it may have become matrimonialised. For instance, with the other party being brought into the business during the relationship.  

Business interests include:

• Sole traders
• Partnerships
• Limited companies and limited liability partnerships

Many businesses involve extended family with even several generations having an interest.  Even if your spouse is not directly involved in the business, they may have a claim against an element of its value. Many spouses are company directors and shareholders on the advice of their tax advisors. It is important to ascertain current interests, and also the history of the business and acquisition of interests.

It is key to be open and transparent about interests, as any failure to provide the right information could cause issues later and have repercussions for the remainder of the case.

When it comes to divorce and business ownership, it’s key to ensure that business assets are dealt with appropriately and that the interest is valued correctly. Usually this is done by an independently appointed expert who owes a duty to the court.

As in life, not all experts are equal. Depending on whether we are seeking to protect or investigate the value of a business, we may advise you to also use the services of a shadow accountant to consider what is said by the expert. Alternatively, we might work closely with the company’s own accountant. We have good relationships with respected experts in the field.

The experts will need to consider:

• Tangible assets held by the business (property, equipment, which may need their own separate valuations)
• Intangible assets (goodwill, brand value)
• Future income streams
• Market position of the business and
• Liabilities

We help you understand:

• The correct way in which the business in your case should be valued. For example, if it’s a property holding business, the value of the properties, liabilities and income streams from the property will be key. A different methodology will be relevant when the business has limited assets and needs to be valued on the basis of an income multiplier. We can advise on complicating factors such as minority discounts for example.
• What portion (if any) may be shareable
• What, if any, liquidity there is in the business
• How to avoid forced sales or operational disruption
• Ways to offer compensating assets in lieu of shares
• The tax implications of extracting value

Once a correct valuation has been obtained, along with consideration of liquidity and tax issues, then options other than a sale can be considered where relevant. Such as dividing the business interest by potentially transferring shares to the non-business owner, or by “offsetting” the interest against other assets held by the family overall.

We have extensive experience in helping people deal with divorce and business assets, so we're in a strong position to advise on pre-nuptial and post-nuptial agreements. These agreements are especially useful if you own a family business, as they can help protect it in case the relationship breaks down in the future. By agreeing things in advance, you can avoid uncertainty and make sure the business keeps running smoothly, even if you later separate. Especially when third parties also have their own interests in the business.

Having such agreements is a key element of business and wider family planning. They are also much easier to negotiate when relationships are thriving as opposed to when they have broken down. Pre- and post- nuptial agreements are also key evidence of the value of any business interests at the outset of the relationship. This can circumvent potentially expensive forensic accountancy exercises later.

If an agreement has been put in place, we can advise on its standing during any financial provision negotiation or proceedings.

Our team has always worked with methods of non-court dispute resolution (NCDR) to ensure that our clients avoid the costs and stress of lengthy court proceedings, wherever possible. This can be crucially important in cases involving active businesses, where the delay and uncertainty of waiting for a court decision can damage the on-going financial stability of the business. It's even more critical when other people are connected to the business or if competitors might try to take advantage of any disruption.

Private dispute resolutions and arbitrations can be done relatively quickly and ensure confidentiality for everyone involved. Many of our clients with business assets work with us to achieve settlements through these routes. This minimises the public element and stressful aspects by avoiding court.

Even when a negotiated settlement is achievable, it is imperative that individuals work with their lawyers and accountants to ensure that tax issues are not missed and are appropriately mitigated where possible.

We work with clients to ensure that, when one party leaves the business, we deal with any employment issues, preparing compromise agreements where relevant. Our team of family law experts can also ensure that the parties enter into appropriate shareholder agreements. Particularly if they plan to continue retaining interests in the business together. It’s key that settlements are not rushed but deal with future proofing. This ensures that there is no later litigation when the divorce has been finalised.

Our client, a director and shareholder in a long-standing family business, had to deal with this within the financial settlement negotiations on divorce and business. We were able to ascertain the lengthy history of the business and its development during the marriage to establish that the business, while still being relevant to our client’s resources, was entirely non-matrimonial. Therefore, it should be protected as far as possible to enable this to continue as always planned by the wider family.

In representing this client, we:

• took a full and detailed history of the business from the client including consulting Companies House records and client’s own documents to prepare a detailed chronology of the business
• instructed a forensic accountant to value the business
• demonstrated the non-matrimonial nature of the business
• worked with our client and the other party in a non-court negotiation to ensure there was no business damage or interruption during the financial provision process
• achieved a negotiated financial settlement which included an offsetting deal that preserved continuity of the business for the future

The result was minimal disruption to the business and a fair, private and amicable financial settlement.

At Winston Solicitors we understand that a business can be more than an asset – it may be a lifetime (or more) of hard work and could be key to the whole future of the family.

We take a proactive approach to helping you to reach a financial settlement agreement with your spouse where business assets are concerned. In divorce and business, decisions must be made quickly and opportunities grasped. We understand that a business cannot be put on ice while family issues are resolved.

We work closely with trusted experts and advisors to guide you through the process, helping you reach a financial settlement that works for you, your family, and your business.

Start with clarity. Speak to Winston Solicitors today for divorce advice that’s tailored to cases involving divorce and business interests. Whether it’s your own business or your partner’s, we can help you to achieve clear, fair financial settlement outcomes for the whole family.