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Divorce is never easy, and even more so for business owners, who must contend with the additional complexity that a business is often the most valuable marital asset, and the way it is treated in a divorce can have far-reaching consequences. In the UK, divorce law states that all marital assets and business interests may be available for division upon divorce, and so a sound strategy that aims to protect your business must be established. This takes some thought, sound legal advice and understanding the areas in which you can take action to protect the business for the future.
In the UK, on the other hand, the business is regarded as one of the financial assets that are potentially divided in divorce. If the business was created during the marriage, or if its value has increased during the marriage, then this could be regarded as a matrimonial asset. If the business was formed before the marriage, but its growth, or the active involvement of the other spouse, relates to the period of marriage, then the other spouse may have a claim to a percentage.
The division of the business assets depends on a number of factors including the length of the marriage, what each party put into the business (financially and non-financially), and the needs of both parties, particularly if there are children. UK courts aim to make a fair settlement but what’s fair is not necessarily 50/50.
To safeguard your business, your first move is to have it appraised. Business valuation is a complex process, and often requires the help of financial experts. In most cases, the business’s value will be based on the assets, the income, and the amount of debt owed at the time of the divorce. However, market conditions, future earning potential, and the business’s dependence on either spouse may be considered, too.
It’s important that there is a proper and impartial valuation, because this determines the way in which the business will be viewed for the purposes of the financial settlement. Without a valuation, you risk the business being undervalued, which could result in an unfair distribution of assets, or overvalued, in which case you could be left with a financial millstone around your neck.
There are a variety of ways to split up a business in divorce, and the best method will depend on the facts of the marriage, the nature of the business, and the preferences of the parties.
One option is for one spouse to buy out the other’s interest in the business. This allows the business to continue its operations undisturbed, and lets the spouse who wants to keep the business to do so. But it requires the buying spouse to have sufficient funds, which might require liquidating other assets or obtaining financing.
A less frequent strategy is to sell the business and split the money between the two spouses. This option is less common but it is usually the easiest way to accomplish the division of the business. Selling a business is a complex endeavor however, especially when there are external shareholders or employees involved. It can also be emotionally challenging if both spouses have spent a lot of time and energy growing the business together.
Another option is for their joint ownership and management can be difficult, especially orated, but it may be possible if the parties can continue to work professionally with each other. Any such arrangement would require clear and carefully considered agreements about roles, responsibilities and financial matters.
If you want to protect your business from the fallout of divorce, the best time to do so is before marital problems even start. A prenuptial agreement and a postnuptial agreement can be extremely valuable if you want to prevent uncertainty and discord in the event of a divorce. By drafting these agreements before the divorce, you can clearly state how the parties will divide assets, including the business, in the event of a break-up.
For those already married, it’s often beneficial to set up your business ownership so that there’s less exposure. For example, holding the business through a trust or splitting it up among other family members can reduce the amount of the business that might be marital and subject to division in a divorce.
A divorce is an emotional time and, when a business is involved, things can be even more challenging. The owner has to try to keep the business functioning, in addition to coping with the divorce. A business owner should get help through all of this – from an attorney, a financial adviser or even a therapist.
It is important to communicate regularly with staff and other key stakeholders and to be as open as possible about the situation. A big cause of stress during divorce is uncertainty about the fate of the business, and reminding staff and clients that the company is still a going concern can head off unnecessary disruption.
Lastly, take advice as early as possible. Instructions from a solicitor who understands both family and business law will help you navigate the complexities of dividing the business assets and making decisions. You will also need to engage the services of financial advisors and business valuators to ensure that the business is valued properly and that you are prepared to negotiate a good outcome.
In conclusion, it is important that you take steps to protect your business in the event of a divorce. By being prepared, you can avoid the worst of the potentially damaging effects, with a good divorce lawyer by your side.
