Separating when a business is involved – how does it work in the UK?
For business owners, going through a separation affects almost all elements of your life, from professional to personal. Splitting up means you will have to protect your business as much as you can. It’s imperative that you protect your assets during divorce – whether an asset like a family home or property is owned by one of you, this is considered a matrimonial asset. In Scotland, this is different.
Can my partner make a claim on my business?
Couples living together unmarried are treated differently than civil partners and spouses when it comes to business claims. Former couples do not have an automatic right to stake a claim in a share of a business. This can vary in cases where there were business arrangements in place, for example, if the other party has made a financial contribution towards it or the business was run together. This is called having a beneficial interest.
Getting a business valuation
The first action to take is to get your business fully valued by a third-party professional such as a business broker or an expert accountant. Usually, and especially when businesses are co-owned, former partners will jointly appoint a valuation expert. During a valuation, several factors will be taken into account, including the structure (whether it’s a sole trader, partnership or limited business organisation), future potential earnings and any assets or liabilities associated with the company. They will also use comparative sales of similar businesses to determine the final value.
When you don’t agree on a valuation
It’s not uncommon for one of the partners to gain a valuation that is less than what the other party expected. If you don’t agree on a valuation then you can look at going through mediation where a neutral third party considers all the information relating to your case and helps both parties find a solution. It’s also worth noting that appointing a specialist can prove expensive the longer it goes on, plus external economic factors or issues within the business may have impacted its most recent valuation.
When you co-own a business
If you run the business together then you will need to calculate and agree on how things will be divided both in your home and professionally. If you have thought ahead before setting up a business, you will have an agreement in place, for example, a cohabitation agreement which may include what would happen to your business in the event of a separation. For example, who will run the business on a daily basis, how conflicts will be resolved, how big decisions will be made and what salary or pay package each of you should receive.
If you are running a business together and your relationship with the owner or co-owner has completely broken down, the business is under threat, and therefore its potential value too. It’s in every one’s interest to be as reasonable as possible when trying to reach mutual agreements on its valuation. When there are no legal agreements in place regarding your business in the event of separation, you have the option of going through commercial litigation but this can end up with you paying significant costs.
In most cases, it’s beneficial to speak to a legal expert to help and guide you. If you have just set up your business, they can help you draw up a legally binding agreement. On the other hand, if you have no agreement in place and are splitting up, they can give advice on your next steps regarding how you can reach a fair resolution with your former partner.