Will Divorce Destroy your Business?

This article looks at how the courts approach the division of business assets during the process of a divorce. When one or both of the persons involved in a divorce owns their own business an award to a spouse from the assets held in this business can still be made. Due to this it is crucial for couples in this position seeking divorce to contact a specialist divorce solicitor as soon as possible.

The overriding principle in divorce is that the family’s assets are divided fairly in accordance with each couples contribution. Nevertheless, when it comes to business assets the courts have demonstrated a reliance on the precedent of a 50/50 split between spouses.

When dealing with business assets, the court can award a 50/50 split irrelevant of contribution to the business itself. This commonly occurs in cases, which the husband is the breadwinner and the wife is a homemaker (or vice versa). It is assumed by the court that the homemaker party has scarified their career on the basis of financial security received from the business assets in question. Not only this, but the non working party is assumed to have supported the working party in their business ventures.

In situations such as this, the court will not necessarily enforce a sale of the business to fulfil the conditions of the split. Maintenance money may be awarded instead of an outright payment if the business provides an income which supports both spouses and their family. Selling individual assets from the business whilst keeping it as a going concern can fulfill the claims of a divorce.

How does the court achieve a settlement?

You should obtain a current valuation of the business assets so that the court is able to negotiate a settlement. This valuation will need to demonstrate more than just the current balance on the books; it will have to show profitability of the business and it’s potential future earnings. Not only this, but the business should be valued as both a going concern and what it would achieve from liquidity. The court will use this information in connection with all the usual factors it considers during divorce proceedings.

Upon receiving a valuation for the assets the parties should embark upon negotiations before the matter appears in court. Such negotiations can happen via mediation or collaborative law. Decisions reached in this way can save parties large sums on legal costs and court fees.

How can I avoid losing my business assets upon divorce?

If your business is pre-owned prior to the marriage, then it is advisable to seek protection through a prenuptial agreement or pre-civil partnership agreement.

However, if the process of creating your business occurred during your marriage there are certain actions that you can take to ensure that each party’s rights are defined. Examples of these measures are creating a shareholder agreement or forming a discretionary trust. These agreements can include directions to how business assets will be divided upon divorce.

If you are considering implementing any of the above protective measures, it is always advisable to seek legal advice from specialist divorce solicitors prior to taking any action.


About the Author:
Tim Bishop is senior partner at Bonallack & Bishop, a firm of specialist divorce solicitors specialising in prenuptial agreements. He is responsible for all major strategic decisions, seeing himself as a businessman who owns a law firm. Tim has expanded the firm by 1000% in 12 years and has plans for its continued development.
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