Divorce and Business – The facts

When you are going through divorce a whole range of emotions have to be dealt with, but after that come the practicalities concerning house moves, pensions, general finances and what to do if you have a business.

Businesses are part of the assets to be shared on divorce and dealt with by the family courts – rather than the commercial courts – and they look into all aspects of the business and whether it is a trading firm, a company or a partnership.

It’s often about how your business is dealt with in the process and how the financial implications play out.

How Divorce deals with Businesses

1. A Form E is the first process, this is an exchange of financial information when details relating to your business will need to be provided.  A full and frank exchange of information has to be provided including three years of accounts, shareholder details and any monies owing under a Director’s Loan Account.  Sometimes it may be necessary to appoint an independent accountant to value the business once this first stage is complete, a surveyor may also be needed if the property is owned.
2. The emphasis from the court is always on trying to solve any issues and if the process does go to litigation an agreement will be sought.  There are also non court options and the process then moves on to negotiations either via written proposals, round tables meetings or through the mediation procedure.
3. Finally a ‘consent order’ is drawn up, this is a court order once agreement has been reached and this is legally binding between both parties and implements the terms of the agreement.

At Pearson our family team have worked closely with family business owners who have been through the divorce process and continued to work side by side, but at the same time we have reached settlements for others who prefer a clean break both in the marriage and in the business.

There are of course a wide variety of businesses which our divorcing clients own and work in; from small family concerns, right through to multi-million pound firms.  These can all be dealt with a little bit differently: A property or investment based business has no underlying trade and so the values of the assets are the main consideration. An income stream business is usually a tradesman or service provider this business can often be operated in the guise of a limited company structure, but mainly they are sole traders and on divorce its value is taken as the value of the net assets in the business.  Finally a trading business is usually valued according to its profits and annual maintainable earnings.

As a business owner you may wish to look at options for protecting your business and here the advice of a qualified solicitor is crucial.  If you are a spouse and not involved in the business at all you will be more interested in ways you can claim a fair share without damaging the continuity of the business – which after all is a source of income.

“Both parties can of course retain all shares in a business if they work together and it can continue to operate outside the divorce process but this option relies heavily on non-confrontation and a carefully-drafted shareholder’s agreement making sure both parties interests are protected,” said divorce solicitor, Emma Kendall.

If a clean break and a ‘divorce’ from the business is what is preferred the court will take into account the value of said business and can order a lump sum to be paid out and usually the longer the marriage the more the spouse is entitled to - it’s then an issue for you to determine how to raise those funds from your business.

“If you decide to continue to run business alone your spouse will often keep other assets such as property or pensions,” added Emma.  “Courts will then assess the risks you are potentially taking compared to those of your spouse in determining division of assets.”

For advice on any divorce process, but particularly if you own a business and are considering divorce proceedings contact Emma Kendall on 0161 785 3500

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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.