Dealing with a family business in a divorce

If you or your spouse has an interest in a business, there will always be arguments as to whether or not this should be taken into account during a divorce and treated as a matrimonial asset.

If you have been in a long marriage, then the law aims to divide assets equally. This can be difficult in the case of a business where assets are tied up and cannot be sold.

In practice, the person who is mainly involved in the running of the enterprise will usually keep the business while the other party may receive compensation instead.

This could be by an agreement to pay capital in instalments or offset by an increased share of other assets such as the matrimonial home, savings or investments. Generally, the court seeks to avoid a situation where the compensation is either an ongoing or new shareholding in the business.

If the business has a good income but little in the way of capital, this could be an argument that is used for a payment maintenance or once again for it to be offset through a greater share of the assets elsewhere.

Where a business was established before the marriage and/or is solely an income stream as opposed to being a capital asset, then it may be possible for it to be ringfenced separately from the matrimonial assets. However, the court will always have regard to the needs of the parties first. If there are insufficient other assets to provide adequate support, then business assets are likely to be included.

To reach a fair solution, it may be necessary to value the business, particularly if an agreement cannot be reached on what it is worth. You can ask for financial and other information about the business to be disclosed (accounts, management accounts) and, if necessary, a formal valuation can also be prepared.

Initially, your legal adviser can look at the financial information that has been provided and use this as a basis for negotiation. If you do need to have a professional valuation, then appointing a single joint expert means that the costs will be shared between you. The valuer will look at the net assets of the business, income, share capital and the state of the industry as a whole in preparing a valuation. Also, if business assets are disposed of, there may be capital gains tax implications. Any tax liabilities should be taken into account in the calculations.

Your solicitor will be able to enter into negotiations with your spouse and their legal representative on your behalf to try and reach an agreement over the division of both business and other matrimonial assets. If an acceptable solution cannot be found, the next stage is mediation.

A mediator will work with you both to help you find an acceptable outcome. This is both quicker and more cost-effective than litigation and it is something the court will usually expect you to try.

Ultimately, if mediation is not successful then an application will usually be made to court for financial remedy proceedings. Effectively, this is where the court sets a timetable for parties to exchange financial information, ask questions in relation to the same and ultimately, list court hearings where administrative issues can be resolved, and agreements approved, or orders made.

If are a business owner and you are not yet married, a prenup can help avoid misunderstandings and difficulties in the future. Although it will not be legally binding, the court will give careful consideration to its contents.

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