The treatment of a business on divorce

Amongst a lot of other things, it’s important to consider what happens to your business when going through a divorce.

For the average divorcing couple, the former matrimonial home is often the most valuable asset to be divided. However, it’s important for all assets owned by either of the parties to be taken into account, which means businesses commonly have a part to play in divorce settlement talks.

For a business owner whose income is dependent on the success of their business, the prospect of a sale can cause real concern. When dealing with business interests, it’s important to always seek expert advice. In particular, an independent valuation of the business will help to establish how much weight should be given to it in negotiations.

Different types of businesses will be valued in different ways, and it doesn’t always follow that a successful business will be particularly valuable in a capital respect. For example, the value of a small business may be more in its ability to produce a steady and healthy income for the owner, or the value may be in the owner themself and the specialist knowledge they have. Even where the business has stock and equipment, this may be required to produce an income for the owner, as opposed to being an asset which can simply be sold and divided between the parties.

Where the business has significant assets such as property, the overall value of the business is likely to be greater, but it is still critical to consider the importance of such assets to the functioning and success of the business and business liquidity generally. The source of business interest is likely to be relevant. Family businesses passed down through the generations, much like farming businesses, will be treated differently in divorce settlement discussions to business interests which have evolved during the course of the marriage.

Although there can be some anticipation surrounding businesses on divorce and an assumption that this will increase the overall assets available for division between the parties, this is not always the case. The court will have a duty to consider both parties’ needs, which includes not just their capital and housing needs but also their income needs. If breaking up or selling parts of a business will significantly reduce one party’s income below what they need to meet their outgoings, it may be necessary to keep the business intact.

Where a business is retained by its owner, any significant disparity in its value compared with the capital owned by the other party may be dealt with by way of offsetting. This is a practice by which the value of one asset, in this case the business, is set off against the value of another asset, for example the former matrimonial home. The non-business owner might retain more of the equity of the former matrimonial home so that both parties end up with the same amount of capital, but from different resources. However, there would still need to be a consideration of whether the business owner can meet their capital and housing needs if the business is being retained for income purposes, which may make offsetting inappropriate.

Overall, the treatment of a business in divorce settlement talks is often complicated and will be dealt with on a case-by-case basis. Our specialist family lawyers can advise not only on how to approach business interests in this context, but also how it might be possible to protect them by way of a pre-nuptial or post-nuptial agreement.

Our Legal 500 and Chambers-rated department can help with all aspects of family law. Our lawyers listen to your needs sensitively and fairly, providing clear, supportive and careful guidance to deliver the best outcome for you.