Is a limited company protected from divorce?16 Mar 2023 | Joanne Wescott
Is my spouse entitled to half of my business?
If you are involved in running a limited company, then it is important that you know how a divorce could affect your business.
We understand that this can be a worrying time for you, not only facing changes in your personal life but with the added stress of how that may impact your working life. Below we take a look at some of the most frequently asked questions from our business clients contemplating divorce.
One of the most contentious issues when it comes to businesses in divorce settlements tends to be the value of any business. It is not uncommon for the spouse running the business to portray it as being of little or no value. Accounts need to be scrutinised to ensure a fair value is obtained, and how the value is assessed will depend on the business structure and profits.
Any business that you or your spouse have a financial interest in will need to be disclosed and taken into account in your divorce settlement. There are a number
of factors that will determine how big a factor a business asset will feature in a financial settlement. These include the nature of the business, how long it has been established and what involvement your spouse has in the business.
Family and international business structures can sometimes make it difficult to value the business and to release cash or assets from it, however, our lawyers work closely with accountants who have expertise in valuing businesses and understanding the interplay between business and tax structures in divorce.
Most importantly, we understand the importance of keeping your business as a going concern and can guide you in reaching an outcome that will ensure the integrity of your business is not compromised.
Will my business be taken into account in divorce?
It is often thought that a business will not be taken into account in a divorce, but that is not the case.
The starting point is that a business is considered to be an asset. If you have an interest in a business, then it must be disclosed during the divorce process in the same way as any of your other assets. Your share of any value in the business will be taken into account when calculating the overall matrimonial pot to be divided between spouses.
Does it matter if I am a sole trader, a partner in a small business or a limited company director?
Your business structure will dictate how assets are owned:
- as a sole trader, the business assets are solely yours;
- as a member of a partnership, the business assets are owned jointly by the partners, either equally or in accordance with shares specified in a partnership agreement; or
- a limited company is a separate legal entity, which means that any business assets are owned by the company, not by individual directors.
How a company is operated and your individual shareholding will also influence how easy it is to realise your share in its value.
How is a business valued in a divorce?
Once the business structure has been examined, this will clarify who legally owns business assets and liabilities, and what interest shareholders have if it is a company. It will then be necessary to look at the value of the business in terms of tangible and intangible assets.
The business valuation will usually be based on one or a combination of the following:
- Business assets – this is typically used in investment businesses where the value is nearly wholly held in the assets of the business itself. Commonly this will be where the business is involved in buying property and letting or renovating it. It could also be used in a farm or manufacturing business where the assets are considerable.
- Trading pattern – this involves looking at the history of trading profits and estimating the future growth of the business.
- Business Income – this looks at what income a spouse generates from a business. As well as drawings, it looks at other expenses covered by the business to build up a picture of what the business is worth. This is commonly used in a skill-based business, such as web design, where tangible assets may be few, but the income generated is considerable.
It is normal to instruct an expert, usually an accountant, to value the business. We have a panel of experts and depending on your company structure and needs we will advise you on the most appropriate expert.
How do I protect my business in a divorce?
If possible, we will always look to find a solution that means you can preserve your business. Indeed, courts have shown a willingness to leave business structures unaffected by divorce and enable them to continue as a going concern.
While this means that you are unlikely to have to sell or transfer your business, it may still mean that you have to find money or other assets to provide for your spouse in lieu of their interest in your business. Obtaining early legal advice will give you the best options to protect your business.
My business was established long before I married, will this change how much my spouse is entitled to?
If your business was established before you married, or perhaps even before you met your spouse, then that will be relevant. The court’s aim is to establish a position of equality between spouses in relation to the division of matrimonial assets. Assets acquired prior to marriage are not usually considered to be matrimonial assets. However, in relation to an ongoing business that was acquired prior to marriage, your spouse will be entitled to an interest as the business has continued during the marriage.
How does a freezing order stop my spouse from devaluing assets?
If you are concerned that your spouse is trying to devalue assets, then you may require a freezing order. This is a type of injunction made by a court to prevent your spouse from dealing with their assets. In order to make a freezing order, the court must be satisfied that there is a risk your spouse will dispose of or devalue an asset and that this action would be prejudicial to you in obtaining your fair share in a financial settlement. If you suspect your spouse may do this then it is important that you act quickly as taking preventative action by way of a freezing order is preferable to trying to obtain a remedy following an asset being transferred or depleted.
How Osbornes can help?
When it comes to considering your business during a divorce it is essential that you obtain early expert legal advice. Our expert divorce lawyers in London have experience in representing and advising clients on all aspects of divorce including how best to value and deal with business assets in financial settlements in divorce. We deal with both UK and overseas businesses.
If you are overseas or outside London, we have high-speed video conferencing facilities and a full online service to ensure you are kept up-to-date and fully appraised of your case and legal options.
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