With 1 in 2 marriages leading to separation these days, we take a look at how divorce can affect your business assets…
Divorces can be difficult. Not only do you have to delegate difficult tasks such as who gets child custody and who gets the house, but you also need to consider the financial side of things.
A divorce can affect your business assets which can include things such as your stocks and bonds. The financial implications of this vary depending on whether you’ve protected your business in advance and whether the company is a shared business interest between you and your ex-partner. It’s also determined by things such as if you own the business outright or if you’re a significant stakeholder.
If you’re currently going through the process of a divorce, or you’d like advice on how to protect your business assets as a precautionary measure, it may be worth speaking to a London divorce lawyer who can offer you legal advice and representation.
In this article, we’ll be explaining exactly what the financial implications of a divorce are, as well as what can you do to prevent this from affecting your business assets…
Why Do Divorce Proceedings Involve Business?
In the UK, businesses are considered an asset. Irrespective of whether you own the company outright or you’re a partner, the court will take the value of your business into account when dividing assets between you and your ex-partner.
If possible, the courts will try and leave the business owner with the business and compensate the other partner with liquid assets. However, this is not always the case if both partners have shared interests in the business or if there are other complex circumstances.
Have Your Business Valued
The purpose of having your business valued is to see exactly how profitable it is and so to give a fair portion of it to your ex-spouse, as part of the divorce settlement. Whoever owns the business would have to arrange the evaluation, for shared business interests either of you could arrange this with experts.
Having your business valued is not always a straightforward process if the business is privately owned, there are some factors the evaluation depends on including:
- Profitability of the business – including how much it’s expected to make in the future
- The business property and stock value
- The structure of the business (limited company, sole trader or partnership)
Having your business valued can be costly to do, so it’s best to seek legal advice before the process starts to get recommendations for an expert.
Why Does the Business Structure Matter?
If you’re a business owner, you will know exactly what your business structure is or falls under. If you’re the ex-spouse and have no part in the business, you may not be aware of how the business is structured and why it matters.
How a business is structured can determine what is taken into account in the total value of the business to divide. There are typically three kinds of business structures including:
- Sole trader – the owner controls all the business assets, income and profitability are taken into account as well as any vehicles or property
- Partnership – 2 or more people own the business, if this is the case an expert would be needed to value the business
- Limited company – this involves other people having a stake in the company and can also make having it valued more difficult
What Happens if the Value of the Business is Disputed?
Whilst the divorce proceedings are ongoing, couples may not always agree on how much a business is really worth. This is often the case when only one person within the marriage is involved in the business.
For obvious reasons, the business owner may appear the undervalue the business in order to have less to divide and essentially give to the ex-spouse. If you suspect your ex-spouse is attempting to cover the true value of the business, you can appeal to the courts to get the information from their bank or accountant directly.
Trying to conceal any true values of your business will not work in your favour in court and you could risk having to pay more in legal fees if caught out.
How to Protect Your Business if You’re Getting Divorced
Whilst you cannot keep your business interest out of the divorce settlement, you can protect your business in a divorce in a couple of ways including:
Have a Prenuptial or Postnuptial Agreement in Place
Prenuptial and postnuptial agreements are the most effective ways of protecting your business assets in the event of a divorce proceeding.
A postnuptial agreement signed just before a divorce can look suspicious, so it’s best to get one signed either before the marriage or just after so both parties are aware of the circumstances. It’s also recommended that this is done through a solicitor to make it legally watertight in case of future disputes.
It’s also worth noting here, that prenuptial and postnuptial agreements are not legally binding documents in the UK. However, if these agreements are done correctly, they can strongly influence court decisions on financial settlements.
Use Other Dispute Resolution Methods
It’s also worth having a simple discussion with your ex-spouse to see if you can come to an agreement without delving into legal proceedings. Mediation can be a great way to discuss openly what is fair to split in a divorce.
There is a chance your ex may not want a portion of your business if you can come to another resolution. This is also far cheaper than using experts to determine the value of businesses to divide.
How Divorce Can Affect your Business
As you can see from this article, dividing business assets can be really complex depending on the set-up of the business and the terms you’re on with your ex-partner.
It’s in the best interest of everyone to divide assets fairly in divorce and if you can come to a resolution before having to use experts, then that could save you both a lot of money.
If you’re the business owner it’s best to be upfront about how well your business is doing and not try to undercut your ex-partner, as this could backfire for you in the end.
Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained legal professional. Be sure to consult a lawyer/solicitor if you’re seeking advice on the divorce. We are not liable for risks or issues associated with using or acting upon the information on this site.