How To Protect Your Business During Divorce

There’s no denying that divorce can be one of life’s most challenging events, but for SME owners, it brings a unique set of hurdles. Beyond personal heartbreak, the fate of your business – often built on years of hard work and ambition – can hang in the balance.

From asset valuations to financial settlements, divorce involving business ownership can be complicated, particularly for those in the North West, where SMEs are the lifeblood of many communities.

James Maguire, Founder and Managing Director at Maguire Family Law, has spent over 30 years advising business owners through complex divorces. What’s more, having co-founded Maguire Family Law with his now ex-wife, James understands firsthand how professional and personal dynamics can intersect. His insights show that while divorce may alter the landscape, with the right approach, your business doesn’t have to be a casualty.

The vital role of business valuations

A first hurdle for many divorcing business owners is valuation. How do you fairly assess the worth of a business intertwined with personal effort and finances? Courts often require a business valuation to help determine settlements, analysing assets or value, income, and future earnings.

Arguments like “it’s not worth anything because it’s not being sold” rarely hold up. But issues such as liquidity, tax, and inherent business risk also heavily influence the real value.

For SMEs, this process can feel daunting. It’s crucial to consider whether the business is a capital asset to be divided or an income source for family finances. Sole traders may find their businesses treated as extensions of personal income, while limited companies are more likely viewed as separate entities.

Of course, obtaining a valuation hinges on professional legal, financial and accountancy advice. Without it, you risk outcomes that could overvalue or undervalue years of effort or overburden future operations or for risk or tax issues not being properly taken into account.

Proactive strategies to protect your business

While divorce may seem unpredictable, there are ways to safeguard your business:

1. Pre- and post-nuptial agreements
   Historically underused in the UK, these agreements are gaining traction. They allow couples to agree on how assets – including businesses – will be divided should a divorce occur. Although not legally binding, they carry weight in court and provide clarity. Parents gifting shares to their adult children for inheritance tax planning often require such agreements for added protection.
2. Shareholder agreements
   For businesses with multiple owners, a shareholder agreement can be a game changer. These agreements limit the transfer or sale of shares during personal disputes, protecting the business from external disruptions.
3. Trust structures
   In theory, placing assets into a trust separates them from personal ownership. However, these arrangements require careful planning to ensure they hold up under scrutiny.
4. Financial record clarity
   It is easy to overlook the importance of separating personal and business finances, but this distinction is crucial. Clear records simplify valuations and prevent unnecessary disputes during settlements.

What the family court considers

In financial settlements, courts assess:

• Length of the marriage: Shorter marriages often result in weaker financial claims for the party not making the financial contribution.

• Standard of living: While relevant, adjustments are usually expected.

• Contributions: Courts recognise both financial and non-financial contributions. Business owners must demonstrate the need to maintain incentives for the business’s success.

• Financial needs: The court ensures both parties and children have housing and income to meet reasonable outgoings.

• Capital resources, income, and earning capacity: Courts aim to protect the business’s viability, recognising that £1 in a business is not equivalent to £1 in cash due to risks. The other party’s age and earning capacity also influence outcomes.

For SME owners, presenting detailed and transparent documentation is essential. Engaging legal and financial professionals ensures fair settlements while minimising disruptions. A joined-up approach early in the process can prevent missteps, help define strategy, and aim for a fair outcome, ideally achieving a financial clean break.

A case in point: Personal experience meets professional expertise

For James Maguire, balancing professional and personal dynamics isn’t just theoretical. Having co-founded Maguire Family Law with his ex-wife, he has lived through the unique challenges of maintaining a shared business post-divorce.

“There’s no blueprint for this kind of situation,” James reflects. “But with clear communication and a shared focus on what matters, it’s possible to find a way forward.”

Their ongoing partnership demonstrates that businesses can remain stable throughout divorce proceedings and beyond. Resolving disputes swiftly is also crucial, as prolonged processes can distract SME owners from driving their businesses forward.

A future-proof approach for business owners in the North West

SME owners in the North West and beyond face unique pressures during divorce. Their businesses aren’t just assets – they’re the backbone of local economies, supporting employees, communities, and families.

Taking proactive steps like securing agreements, maintaining clear financial boundaries, and seeking expert advice can make all the difference. Divorce may be a personal matter, but its ripple effects are professional. By preparing for the challenges ahead, business owners can protect their investments and ensure their ventures thrive in the years to come.

James Maguire, Founder and Managing Director at Maguire Family Law, has more than 30 years’ experience in complex family law matters. A Fellow of the International Academy of Family Lawyers, he sits on several foreign embassy panels and is recognised in both Chambers & Partners and Legal 500 directories as a leader in this field.