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The decision to separate and subsequently divorce is no easy feat at the best of times, and by adding a business into the financial mix, further complications can arise.

In the event of a divorce, the value of the business will need to be established and this will then be taken into account along with the value of any other assets, such as the home, savings and pensions. As a business is not a liquid asset, it is treated differently from cash or investments. Extracting value in the form of cash from the business can be difficult and involve tax implications.

If there are no business assets, for example, business premises, it may not be necessary to undertake a formal valuation and the income produced by the business will be considered instead. In other cases, a valuation can be agreed but you should take independent legal advice before committing to an agreement.

A family business is usually the main source of financial support and therefore, the court will try to preserve it if possible. It is only in rare cases that a court will order a business to be sold. The court will usually leave the business owner with the business and compensate the other spouse with a larger share of the other assets and/or maintenance.

This ‘buy-out’ option is the most common among divorced couples. Typically, the spouse who runs the business buys out the other spouse’s interest, based on the appraised value. If there are insufficient liquid assets to purchase the interest outright, this can happen over time.

Although it is possible for both spouses to keep the business and find a way to work together amicably, most people find it difficult to remain business partners following a divorce.

One of the key aims in the divorce process is to effect a clean break between the parties to enable them to move on with their lives independently however, if the court does transfer shares to a spouse then it may be necessary for a shareholders agreement to be prepared to minimise post-divorce conflict.

We will need to consider issues such as:

  • are both of you are involved in the business?
  • if it is a limited company, does one of you have a minority or majority shareholding?
  • do other family members or third parties have an interest in the business?
  • does the business own property or assets?
  • the capital value of any liquid assets and any borrowing capacity.

We will be able to advise you as to whether an expert valuer should be instructed to provide a valuation in your case.

It is crucial that the liquidity of the business, tax consequences and appropriate timescales are considered carefully.

Pre-nuptial and post-nuptial agreements

Nuptial agreements can provide protection and minimise the risk of family disputes if a relationship breaks down. These can be particularly useful if you are bringing an existing business into the marriage or if your children have an interest in the business and are planning to marry. However, the court will only uphold the terms of a nuptial agreement if they are considered to be fair so again, it is recommended that you seek expert legal advice.

Employment claims

If your spouse is an employee of the business, terminating their employment could result in you facing employment claims. You should carefully consider all your options before taking the decision to officially employ your spouse.

Alternative methods of dispute resolution, such as mediation or collaborative law, may be worth considering as an alternative to court.

If you would like to discuss pre or post nuptial agreements, shareholder agreements, employment claims or divorce and separation, our experienced lawyers will be able to help. Specialising in wealth preservation, they will provide you with the knowledge and support that you need to make informed decisions.

For more information and support with divorces involving businesses, please call us on 01332 226 467 or complete the form below.

 

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