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Where there is a family business in a divorce, this adds a layer of complexity.
For the business owner, he or she will be anxious to know how the business is to be taken into account in the financial settlement.
For the other party, he or she will want to know what their entitlement is and whether or not they can receive money from the business.
The Family Court needs to first look at the type of business. For example, this could be a sole trader, a limited liability company, a partnership, trust and so on.
The next important consideration is the type of value that the business might attract. Whilst the Family Court has power to direct a business valuation by an independent accountant, this is not automatic.
There can be some real problems in looking at what, for example, a family company might be worth:
There needs to be a proportionate approach to these issues which arise where there is a business in a divorce. We can look to instruct a shadow accountant behind the scenes first to help you, whether tactically to help protect your business or, if you are making a financial claim, in terms of obtaining information so a judge will direct a business valuation report by an independent and specialist accountant, jointly instructed by both of you.
There short answer is that it might be both. There are many cases where the business is more of a lifestyle business and is an income producing asset. It can be then wrong to approach the divorce case and seek (a) the capital value of the business and (b) also maintenance from the income it produces. The Family Court may feel this is bad for double counting.
That said, in a higher value business on divorce case, the value of the shareholding might be significant and/or there may be cash at the bank or surplus financial resources. The Family Court needs to know what all the assets in the case are and so a fair settlement might reached.
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The first obvious point is that a minority shareholding might attract a discount in the value of the shares. However, some companies are run almost as a quasi-partnership, so arguably no discount might not apply. Each divorce case needs be considered individually.
Next, a business on a divorce might be seen as a riskier asset, compared to say a property. It is also illiquid. So, there are common arguments that there should be a further discount in the value of the business or shareholding to take business risk or liquidity issues into account. The tax consequences of a divorce should also not be overlooked because it is important to consider the net asset base of the case.
This is rare and unusual. Certainly, it will be seen as the last resort as it could be killing the goose that lays the golden egg.
The Family Court needs to consider all the facts and circumstances of a divorce. The judge will take into account relevant factors.
One good way to protect your business on divorce is to consider in advance a pre-nuptial or post-nuptial agreement. Your pre or post nuptial agreement could look at ways of attempting to ringfence the business or setting out how it is to be taken into account in any future divorce or separation.
If a nuptial type agreement is not possible, exercise caution and seek legal and accountancy advice if you are considering transferring shares to your partner. Where this happens, it can add a layer of difficulty in the divorce and/or a problem in actually getting the shares back.
First, the Family Court does not have power to make orders in respect of your shareholding or partnership interest. However, you will naturally be concerned about how the impact of a divorce may have on your business. Your business partner should ensure that he or she has the best possible divorce advice from a solicitor; and who has experience in dealing with business on divorce cases.
A shareholders’ agreement might be an important consideration to review or put in place; or, where appropriate, a partnership agreement. This could reasonably seek look at what is to happen to the business shares or partnership interests in the event of a divorce.
We have a very experienced family law team that specialises in business on divorce cases.
We act for parties who want to protect their business interests or for parties who wish to make a financial claim.
Our family law experience extends to business cases involving assets of £1-5M, to ultra-high net worth business cases of £20-50-100M+.
We are ranked in Tier 1 of the Legal 500 for 2023 for family law, which is an independently researched directory to the legal profession.
We make International Family Law simple for you and take away as much of the stress and drama as possible. Remember, we’re on your side.
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Maguire Family Law are experts in all aspects of divorce finance law and we can inform you of your legal rights and the strength of your case. We’ve helped so many people in so many varied situations, there’s no problem too big or small for us to assist you with.
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