What happens to my business in a divorce?
When a divorce takes place, consideration has to be given to the assets of the marriage and how they are to be divided. Businesses used to be protected within divorce proceedings but this has vastly changed since the leading case of White v White.
This case established the yardstick of equality and led to a family business being sold. Businesses are today very much classed as a matrimonial asset and how the business will be treated on divorce depends on a variety of factors.
What will my solicitor need to know?
It is important for your solicitor to fully understand the nature of a business. Each business is different and to understand the impact a divorce may have, it is essential that there is a good understanding of how the business works.
Some of the questions that will need to be considered to fully understand the business and its relevance to the marriage are for example:
- How was the business formed?
- When was the business formed?
- How is the business structured?
- How is the business owned?
- Who else is involved/owns the business?
- What role has the other party played in the business?
- What role have you played in the business?
- Are there share holdings to be considered?
- What is your intention for the future of the business?
It may be the case that the relevance of an inherited business in a very short marriage is much less than an inherited business in a long marriage where both parties have been actively involved.
The starting point with any financial negotiations is an exchange of full and frank financial disclosure. This may well include a valuation of the business that is fair and reasonable. Your business accounts will not normally be sufficient. It is common for a valuation to be conducted by a single joint expert to help keep costs to a minimum. The business valuation is crucial not only in establishing the overall wealth of the business but also to address issues such as tax liabilities if a business were to be sold.
How might my business be dealt with?
Once the value is established, the next consideration is what the other party’s interest is and how it should be realised. If the business has assets, these could potentially be sold to pay a lump sum to the other party. Similarly, assets could be transferred to the other party i.e. if the business rents our properties, can some be transferred to the other party and the business still operate? If the business is income rich and capital poor and produces an income that supports the family, an order could be made for maintenance payments to be paid to the other party or for there to be a lump sum payment but paid via instalments.
It is also possible to settle a party’s interest in a business from non business assets. For example, if there is enough equity in the family home, the other party could receive a larger share to reflect their interest in the business.
It is only in cases where there is no other option available, that a business will be sold in order to provide a financial settlement.
How much will my husband/wife get?
This question is far more difficult to answer. Once all the circumstances of the case are known and have been considered, a financial settlement will be reached. The starting point is equality. There may be reason to depart from equality depending on various factors which are set out in the law. The first consideration will always be given to the welfare of any children of the family under the age of 18. The following factors will also be looked at:
- The income, earning capacity, property and other financial resources which each spouse has or is likely to have in the foreseeable future including, in the case of earning capacity, any increase in that capacity which it would be, in the opinion of the Court, reasonable for a person to take steps to acquire.
- The financial needs, obligations and responsibilities which each spouse has or is likely to have in the foreseeable future.
- The standard of living enjoyed by the family.
- The ages of each spouse and the duration of the marriage.
- Any physical or mental disability of each party.
- Contributions which each party has made or is likely to make in the foreseeable future for the family, including any contribution by looking after the home or caring for the family.
- The conduct of each party, only if that conduct is such that it would be inequitable to disregard.
- The value to each party of any benefit which one party because of the divorce will lose the chance of acquiring (usually in relation to pensions).
If a business is a joint venture it is highly likely that it will be divided equally unless some form of outstanding contribution can be shown. This does not necessarily mean that the other party has worked within the business. Their contribution for example by staying at home and raising the children thus enabling you to work and build the business is just as important. If on the other hand the business is inherited, the marriage is of short duration and there are no children, then it is far less likely that it will be divided equally.
The only certainties in relation to your business and what happens to it in divorce are that:-
a) it is an asset;
b) there will have to be full and frank disclosure of it including its value and;
c) the other party’s interest (whatever that may be) will have to be satisfied from the business or offset against the non business assets of the marriage.
Cartwright King has 18 offices around the country. We have a large, expert team of Family solicitors which can be contacted here.
All advice is correct at time of publication.