Divorce with a business involved – how does it work in the UK?
Finances can be sticky subjects in divorce proceedings, and when businesses are involved, things can become more acrimonious. We examine how the business of divorce works in the UK and how you can protect your company.
Business assets in divorce
Typically, a financial settlement in a UK divorce will include the value of any businesses involved. This is even the case when one half of the couple’s income is generated by a business, or if one party is not directly involved and/or if both spouses work within the company or have shares in it. The business is placed into the ‘marital pot’ along with other assets such as the family home, investments and savings.
What type of businesses are assets in a divorce?
Whatever the structure of your business, be it sole trader, partnership or limited company, it will still be regarded as an asset. Getting an accurate valuation is key to understanding how your business may be split, if at all during a divorce. In most cases, the courts want to keep the family businesses going. This may mean they look to retain the business with its owner and offset it against other marital assets like a pension, to reach a financial settlement. For example, if you keep your business, but give the family home or pension to your ex-spouse. The valuation is therefore key in knowing how you should handle your business during a divorce.
How is a business valued in a divorce?
Depending on how amicable you are with your ex-partner, there are a number of routes you can go down to gain a valuation of the business. Firstly, you may both agree on the valuation, which makes things straightforward. Alternatively, you can seek a valuation with a mutually appointed accountant. They will look at various factors, including profits, turnover, assets such as property. This information will allow them to arrive at a figure and provide details on tax implications. This will also put you in the know on how to potentially negotiate the rest of your marital assets.
Can I protect my business in a divorce?
The prospect of a divorce when you have your own business can be unnerving but there are some measures you can take to protect it:
- Arrange a prenuptial agreement with your spouse
The best time to take out a prenuptial agreement is when you first make the decision to get married. The agreement will allow you to specify in a written document, what would happen to your business in the event of a divorce. Although they are not legally binding, pre-nuptial agreements are beginning to be taken more seriously by the courts. If you are already married then a post- nuptial agreement is an option. Both agreements may also help reduce potential future conflict by stating what each other’s expectations are if a divorce were to ensue.
- Keep things separate
Ensure your business finances are kept as separate from your household finances as possible to provide greater clarity between the two. It’s also advisable not to appoint a company role to your spouse or involve them in business discussions as this will help demonstrate their involvement.
- Be willing to compromise
If you want to maintain your business, then going into a divorce with a compromising mindset can help. You may need to be prepared to forgo other joint assets such as a pension or property in exchange for keeping your business.
A final point
While some divorcing couples are able to keep on working together in a family business, these cases are few and can ultimately result in difficulty making necessary business decisions impacting the success of your company.