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WHAT HAPPENS TO A FAMILY BUSINESS IN DIVORCE?

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WHAT HAPPENS TO A FAMILY BUSINESS IN DIVORCE?

I am often asked to give my view on how the courts approach cases where couples are divorcing and one of their assests is a business. Divorce, despite the best efforts of the parties and their solicitors, can sometimes be a traumatic, and difficult process. Divorce proceedings are often more complicated, and the animosity between the parties can increase, where as well as being married, there is a family business. We look at some of the ways in which the courts in England and Wales approach the family business within divorce proceedings. A business may be treated as a matrimonial (or civil partnership) asset and in some cases, it may be the most valuable asset. Although a business is not a liquid asset in the way property and cash are, a spouse can ask a court to make money available to them by, for example, the other spouse drawing down company funds to pay them a cash lump sum. 

Businesses on divorce is a highly specialised area, and the approach to a business divorce case requires careful consideration and handling in order to avoid as much disruption to the business as possible. While many business people wish to retain control over their business and avoid their spouses having an interest in it, other businesspeople consider retaining a business as being riskier than sharing other assets, such as cash and real property. A business has been referred to by the courts as a “risk laden” asset, whereas the cash and property are treated as “copper-bottomed” assets and therefore, less risky. Below are are answers to some of the common questions. 

Is the value of my business taken into account when considering how to divide our assets and how is this valued? 

In most cases the value of a business is taken into account along with the value of any other assets such as the home , savings , pensions etc. The value of the business itself can often be a contentious point and the common approach is for the business to be valued as part of the divorce process by a forensic accountant who is appointed by both parties ‘ solicitors. They can also be asked to provide an opinion on other important factors that should be borne in mind when considering a business case, such as issues of liquidity and whether one spouse can draw significant sums from a business to meet a financial settlement. 

Is my spouse entitled to half of my business? 

It is extremely unlikely that your wife or husband would be given a direct interest in your business , since for the vast majority of divorcing couples,this would be completely unworkable. The more common approach is that if you were to retain your business then your spouse be given some other assets to compensate them. 

Will the court force a sale of business? 

Usually, a family business is the main source of financial support , and therefore the courts main concern is to try to preserve it where-ever possible, so it is rare that a court would order a business to be sold. It is often the case though that if a family business is to be preserved , then the other spouse needs to be provided with sufficient capital and /or maintenance to address any imbalance. There are usually a variety of ways to achieve this and it is important to ensure that the liquidity of the business and appropriate time-scales are considered carefully alongside accountancy advice as to how best any such sums can be extracted from a tax perspective.

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