How Are Business Assets Divided In Divorce?

Is a business considered marital property?

In England, Wales, and Northern Ireland, business interests will generally be considered by the court as matrimonial assets, and their value will therefore need to be added to the matrimonial pot.

This is irrespective of which spouse founded or ran the business.

But in Scotland, business interests are only counted as matrimonial assets if they were acquired post-marriage.

As such, if one party already had set up a successful business before getting married, they will normally keep those assets after divorce.

However, if the value of the business increased during the marriage, this increase in value may be taken into account and added to the matrimonial pot.

What can happen to a business in a divorce?

If you are reading this article you may be asking ‘what happens to my business in a divorce’.

Well, it generally depends on several factors including whether the business only belongs to one individual spouse, for example they founded and managed it alone. In which case the courts will normally try to ensure that party retains their business in full.

Should this be the case then instead of having to share the business interests with their ex, they will have to give up alternative assets (eg their portion of the marital home) as a substitute for the value of the business assets.

However, if there are insufficient alternative assets, it may be necessary to transfer a certain number of shares (in the case of a limited company) to the other spouse.

It is unlikely that the court will order a business to be sold, although it does have the power to do so.

Can my wife take half of my limited company?

In the case of family businesses (eg where both spouses are company directors and own an equal number of shares), the situation can be more tricky.

If the couple split up amicably, they might be able to carry on as business partners.

Alternatively, one party could retain their shares but become a ‘sleeping director’ and allow their ex to manage the business.

Otherwise, one spouse can sell their shares to a new director, or their ex can buy them out.

The same principles apply to partnerships.

If no solution can be reached, the divorcing parties will either need to sell their business or go to court and ask the judge to make a decision.

Regardless of how you decide to divide the existing business assets, you will need the assistance of a solicitor to draw up a consent order for you.

This legally binding order sets out to the court how you intend to divide up the business assets as part of your overall divorce settlement.

Applying to the court to end your financial commitments will prevent both parties from making any future financial claims, even years in the future.

For more details: Is a Limited Company Protected From Divorce?

Can you sell a business before divorce?

Yes, it is legally possible to sell a business before a divorce in the UK. However, there are significant legal and ethical considerations to be aware of.

If the sale of the business is seen as an attempt to reduce the assets that would be available for distribution in the divorce, the courts may view this unfavourably. This is sometimes referred to as “dissipation of assets.” The courts can scrutinise transactions that occur shortly before or during divorce proceedings.

If you do decide to sell the business before the divorce, it is crucial to ensure that the business is sold at a fair market value. Selling the business at an undervalue could be seen as an attempt to defeat the other party’s claim and can be challenged in court.

It’s worth noting that the proceeds from the sale of a business would still be considered in the financial settlement of a divorce. The courts will take into account all financial resources each party has, including any money or assets received from the sale of a business.

Once divorce proceedings have started, the court can issue orders to prevent the disposal of assets, including the sale of a business, until the financial matters between the parties are resolved. These are known as “freezing orders.”

If my husband owns a business, do I own it too?

Whether you have a claim to ownership of your husband’s business in the event of a divorce depends on the legal structure of the business and how it has been treated during the marriage.

For example, if the business is a limited company, ownership is determined by shareholding. Unless you are listed as a shareholder or partner, you don’t have direct legal ownership of the business.

Even if you do not have legal ownership, the value of the business is often considered when dividing matrimonial assets during a divorce. The court will look at the contributions each spouse has made to the marriage, which can include financial, practical, and emotional support.

If the business was built up or developed during the marriage, it is likely to be considered a joint asset to some extent, regardless of whose name is on the ownership papers.

The business will be valued, and its worth will be considered in the financial settlement. You may be entitled to a portion of the value, but this does not necessarily mean you will take over part of the business.

Instead, you might receive other assets to offset the value of your husband’s business interest, or there could be an arrangement for payment over time.

It is important to note that every divorce case is unique, and the treatment of business assets can vary widely. The court’s aim is to achieve a fair financial settlement for both parties, taking into account all circumstances of the case.

How to protect your business assets

It is theoretically possible to try and ‘ringfence’ the assets of a business owned before marriage, to prevent them from forming part of matrimonial assets.

In order to do so, it would be necessary to keep any profits from the business totally separate during the marriage (eg putting them back into the business instead of using them to pay off a mortgage on the family home etc).

However, in a long marriage, even assets that are kept entirely separate may still come to be considered as part of the matrimonial pot by the court.

A prenuptial agreement or postnuptial agreement can go some way towards protecting business assets, but they aren’t strictly legally binding in England and Wales.

These types of agreements are essentially contracts, entered into by a couple either before or after marriage, which set out how the assets of each party – including business interests – should be distributed in the event of divorce.

My husband is self-employed, am I entitled to his business?

When you are going through a divorce in the UK and your husband is self-employed, there are several important considerations to consider.

Both parties are required to fully disclose their financial circumstances during the divorce proceedings. This includes all forms of income, assets, and debts. When a spouse is self-employed, they must provide a clear picture of their business finances.

The business owned by your husband will need to be valued to determine its worth as part of the financial settlement. This can be complex, as it involves assessing not just the current profits and assets but also the future earning potential and liabilities.

The division of assets in a divorce aims to be fair, though not necessarily equal. The self-employed spouse’s business may be considered a marital asset, and its value may need to be shared or offset against other assets.

If your husband’s self-employment generates a significant income, you may be entitled to spousal maintenance.

The amount and duration of maintenance payments will depend on various factors, including your respective financial needs, earning capacities, and any impact the marriage has had on your ability to earn.

How is a business valued in relation to a divorce?

It will be necessary to have a business valued before negotiating a divorce settlement.

The outcome of the valuation will determine the figure which needs to be added to the overall matrimonial pot.

The business owner will need to provide an estimate of the business value in Form E, backed up with company accounts and a letter from their accountant.

The valuation should take into account a range of elements, such as:

• Total business assets including cash reserves, property and stock
• Annual turnover and profit for previous years
• Expected profits based on new contracts
• Business debts

If the valuation estimate is not accepted by the other divorcing spouse, it may be necessary to ask an independent accountant who specialises in valuing businesses, although this can have a significant cost attached.