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Divorce - what happens to the family business?
Where a family business is involved, divorcing couples and the court have to consider other factors. Associate Jonathan Eager in our family law team explains more.
Family businesses are often the source of much of a couple’s wealth, and indeed most of their future income. Once it has been established that a family business is an asset to be distributed as part of a divorce, the court and the parties have a lot of important decisions to make. They need to consider factors like the weight of the business valuation, and how that relates to the way other assets are divided.
Generally speaking, a business is considered a risky asset. In Wells v Wells (2002), the family business was compared to the more stable assets such as houses and was valued accordingly. This results in either the value of the business being discounted, or the party that keeps the business having a greater share of other assets (to reflect the fact that they are retaining the riskier asset).
Doubt was cast over this approach by the case of Martin v Martin (2018), in which the judge simply divided the parties’ assets equally (including the business), despite the fact that the majority of the husband’s award was made up by the shares in the private company. The wife retained the more attractive and less risky assets.
This case was later re-examined by the Court of Appeal, which reaffirmed the view that businesses are risky, and this has to be taken into account when valuing them.
It’s worth remembering that the family business is indeed a marital asset, but its value for the purpose of divorce may be a lot less than the value of other assets, like the family home or cash. With this in mind, you’ll need specialist advice when faced with a divorce or separation, particularly if a business is involved.
Jonathan is an associate, chartered legal executive. He is a member of Resolution, an organisation committed to the constructive resolution of family disputes, and is noted for his expertise in national guide The Legal 500. Contact Jonathan at firstname.lastname@example.org.