Business Structures & Divorce – How Your Company Gets Divided

How courts approach business assets in divorce

Courts operate on a fundamental principle: wherever possible, the business should remain with the spouse who operates it. This approach protects business viability and preserves income-generating capacity for both parties.

The settlement hierarchy courts follow prioritises other matrimonial assets first before considering the business. The family home, pensions, savings and investments are considered before touching the business. These assets are typically more liquid and easier to divide without disrupting ongoing enterprises.

Only when other assets prove insufficient to achieve a fair settlement will courts consider extracting capital from the business itself.

This means business owners typically retain 100% operational control, with their spouse receiving compensation through a larger share of other assets or ongoing maintenance payments.

Understanding business structures & division strategies

Different legal structures present distinct challenges for valuation and division in divorce proceedings.

How the business is held is an important consideration that affects both valuation methodology and practical division options.

• Sole traders and self-employed individuals: Divorce settlements typically focus on ongoing maintenance rather than capital division. As a sole trader, no legal distinction exists between you and your business. All assets constitute personal assets subject to division. Courts assess both current asset value and future earning capacity.
• Partnership: Your spouse cannot receive partnership shares directly. Partnership agreements restrict membership transfer, and other partners have legitimate interests in maintaining their chosen relationships. Financial settlements may involve you purchasing your spouse’s interest in your partnership share through staged payments or an offset. Valuation becomes complex when third parties hold partnership interests.
• Limited companies: A limited company offers limited protection in a divorce. Courts examine substance over form. Your shares and the company’s underlying value constitute matrimonial assets. Courts can order dividend extraction or director’s loans to fund settlements, though they do this cautiously to avoid damaging business viability. Transferring shares must comply with shareholder agreements and articles of association.
• Limited Liability Partnership (LLP): Division involves valuation followed by offset or buyout. Your membership interest represents the matrimonial asset, comprising both capital and income-generating capacity. Transfer restrictions prevent your spouse from assuming membership.
• Family businesses: Share transfers to your spouse rarely occur when multiple family members are involved. Shareholder agreements typically restrict transfers outside the family group. Financial settlements rely on offset arrangements, long-term payment structures, or maintenance provisions instead.

Is my spouse entitled to half my business?

Whether your husband or wife is entitled to half your business depends on multiple factors, not an automatic 50/50 division.

Courts in England and Wales do not apply rigid formulas. Instead, they consider:

• Needs of both parties – If you have substantial other assets (property, pensions, investments) that can meet both parties’ needs, your spouse may receive none of the business value. Courts only divide business interests when necessary to achieve fair outcomes.
• Contributions during marriage – A spouse who raised children whilst you built the business has made equal contribution to the marital partnership. This strengthens their claim to share in business value, even without direct involvement.
• Matrimonial vs non-matrimonial property – Pre-marital businesses maintained entirely separately may be excluded from division, with only marriage-generated growth being shared.
• Business viability – Courts prioritise keeping businesses operational. Rather than awarding “half the business,” they typically allow the operating spouse to retain 100% whilst compensating the other spouse through larger shares of other assets.

In practice, equal division of business value only occurs when the business represents the sole significant asset and both parties have been involved in building it. More commonly, business value forms part of the overall calculation, with creative settlement structures preserving business integrity.

Key factors courts consider when dividing business assets

Beyond legal structure, courts consider multiple factors when determining how business interests should be treated in settlement negotiations, including:

• Timing of establishment – Businesses established significantly before marriage (typically 10+ years) receive stronger protection arguments, particularly when maintained as entirely separate from family finances throughout the marriage. However, any growth in value during the marriage period generally qualifies as matrimonial property.
• Funding sources – Pre-marital capital kept rigorously separate strengthens ringfencing arguments. Conversely, the injection of joint savings or home equity fundamentally alters the business character of matrimonial property.
• Spousal contribution – Courts apply the principle that marriage constitutes a partnership. One spouse working whilst the other manages childcare and household responsibilities represents equal contribution, regardless of direct business involvement. Direct participation through employment or business development creates even stronger claims to business value.
• Business dependency – When the business represents the sole or primary source of income for the family, courts carefully balance the division against business viability.
• Personal versus business goodwill – Personal goodwill (reputation, skills, and relationships that remain with you) receives different valuation treatment than business goodwill, comprising systems, brand recognition, and established customer relationships independent of any individual. Professional practices typically possess substantial personal goodwill, making earning capacity more relevant than capital value for settlement purposes.
• Post-separation accrual – This refers to the increase in value of assets after the date of separation. Determining the fair allocation of post-separation accruals can be highly contentious, especially for business interests which can fluctuate in value over relatively short periods. The court may consider factors such as the contributions of each spouse to the business’s growth during the separation period. An expert may be required to value the business as at the date of separation and again at the date of trial so that a comparison can be drawn. The court may then opt to ringfence the post-separation accrual or apportion it between the parties, depending on the circumstances.
• Liquidity – Illiquid assets, such as shares in a privately held company, may require creative solutions to ensure both parties receive their fair share without disrupting the business’s operations. It is important to carry out an assessment of liquidity when assessing company value, as trading businesses are often required to retain working capital to meet ongoing and future expenses and to aid with cash flow.
• Discounts – In some cases, discounts may apply to the valuation of company shares. These discounts reflect the reduced value of shares due to factors such as minority ownership or limited marketability. Understanding when and how these discounts apply is crucial to achieving a fair valuation of company assets, and expert advice will be needed.
• Tax implications – Numerous taxation issues can arise from the transfer or disposal of company assets. The sale or transfer of shares, for example, can result in a capital gain that is taxed on disposal, and receiving shares can result in a stamp duty levy. In certain circumstances, a shareholder disposing of their shares can rely on business asset disposal relief (formerly entrepreneurs’ relief) to reduce the rate of capital gains tax charge. It is essential to obtain specialist tax advice before entering into any agreement regarding the division of business assets.

What Happens to a Business in Divorce?

Common division structures

Courts demonstrate flexibility in structuring business divisions to achieve fair outcomes whilst preserving business viability.

• Offset arrangements: These arrangements represent the most common approach. You retain complete business ownership whilst your spouse receives compensating larger shares of other matrimonial assets – typically the family home, pensions, or investment portfolios. This achieves clean break settlements without ongoing financial entanglement.
• Maintenance from business income: Maintenance provides an alternative where other assets prove insufficient for offset. Ongoing spousal maintenance calculated from business profits preserves business capital whilst meeting spousal needs.
• Staged payment plans: Staged payment plans allow you to purchase your spouse’s interest over an extended period (typically 5-10 years), preserving business working capital. This requires careful structuring, including interest provisions, security arrangements through charges over business assets, acceleration clauses if the business is sold, and life insurance to protect payments.
• Income sharing arrangements:  Income sharing arrangements mean your spouse receives a percentage of business income for a defined period rather than capital division. This proves particularly suitable for professional practices where capital value is modest relative to earning capacity. It requires a precise definition of “income” to prevent disputes and ongoing information disclosure obligations.

Does my spouse automatically own my business?

If your husband or wife owns a business, you do not automatically own it too. Legal ownership remains with the person named on the company documents or partnership agreements.

However, during divorce proceedings, the business value forms part of the matrimonial assets to be considered for division, regardless of whose name appears on the ownership documents.

Whilst your spouse may own 100% of the shares in their limited company, you may still be entitled to a share of its value through the overall financial settlement.

The court looks at the matrimonial pot as a whole, including business interests, and determines fair division based on needs, contributions, and other factors.

Business valuation considerations

Obtaining an accurate business valuation proves crucial but potentially expensive. Different methodologies produce varying results, and include:

• Asset-based valuation – This approach assesses net asset value, e.g. tangible assets less liabilities. Asset-based valuation is suitable for asset-rich businesses but understates value for service-based enterprises.
• Earnings-based valuation – An earnings-based valuation approach applies multipliers to maintainable earnings, appropriate for profitable trading businesses with established income streams.
• Market-based valuation – This approach references comparable business sales but requires sufficient market data for meaningful comparison.

For shared business interests, either party may instruct valuers. Where one spouse holds sole or majority ownership, they typically organise the valuation process.

Private company valuations present challenges due to the absence of market pricing, subjective judgments about future performance, and differing assumptions about discount rates.