While not always the case, in the event of a divorce it is common for a business asset – whether it is a private company, sole trader, interest in a company or shares in a limited company – to be considered part of the ‘matrimonial pot’ alongside the family home or a pension. This means that, generally, the go-to approach by a court will be to split the value of the business assets between the parties (provided that the needs of the parties have been met).
In order to work out how to allocate or split business assets, the court will need to have a clear understanding of the value of the assets.
During financial proceedings parties must exchange full and frank financial disclosure of their assets. If you have shares in a business, you will need to disclose to the court and your spouse the percentage of the shares and their value, which must documentary evidence.
Providing company accounts will assist in determining the value of a business. However, depending on the situation, it may be necessary to obtain a formal valuation of the business by instructing a single joint expert such as an expert accountant.
Once the business has been valued, the court can make various orders including:
If you have a business or a substantial interest in a business, you may need to consider entering into a pre-nuptial or post-nuptial agreement to ring-fence your business assets. Pre- and post-nuptial agreements are common tools used to protect family wealth; they enable a party to safeguard assets they brought into the marriage which can include inherited assets and business interests.
Whilst a nuptial agreement is not binding between parties, the court will uphold the agreement if it is freely entered into by both parties and the parties have had independent legal advice. Crucially, the agreement must be fair and account for each party’s needs.
Whilst involving your spouse in your business may be an efficient make of tax reliefs, involving them in your business may give rise to the argument that they have contributed to the business’ success. If you are considering taking this step, make sure that you have a comprehensive shareholders’ agreement setting out the voting rights your spouse has and ensure that the articles of association contain pre-emption provisions enabling existing shareholders to purchase your spouse’s shares first.
Ensure that you keep clear financial records and avoid using business funds for the benefit of the family. This will not only complicate matters in the event of a divorce, but it can also provide a distorted valuation of the business.
If you are in the process of separation or considering divorce and have business interests, speak to an experienced family solicitor who will be able to advise your further.