When you have a business and are in the process of splitting up from your spouse, you will understandably want to know what will happen to your business in a divorce and how it will be divided. In this article, we provide an insight into your options and guidance on your next steps.
How do courts view businesses in a divorce?
Like other matrimonial assets, the courts will view a business as a divisible asset during a divorce. If there is a respectable prenuptial agreement in place that specifies that the business should not form part of a financial settlement, it may take this into consideration.
In general, the courts are inclined to leave a business with its owner and seek to compensate the other spouse with other matrimonial assets. If a business is divided then it could be that the income from the business is shared between the two parties, or that the shares within it are divided.
Valuing your business
If you or your partner own or co-own the business, understanding its value is a first step in determining how it should be divided. The courts will use the figures to come to a conclusion on your financial settlement. The valuation can be conducted by a specialist accountant or business valuer and can be appointed by both spouses or one of the spouses. Various financial aspects will be looked at during the valuation including the business’ income, what assets (if any) it has and what their value is, the structure of the company and what capital the company has.
Depending on the nature of your business, business valuations can become a convoluted process. It can, in some cases, also become contentious, especially when spouses do not agree on the valuation.
Options for dividing your business
There are other options regarding the future of your business in a divorce. The courts will consider all options to help it come to the fairest conclusion and will take into account the views and wishes of each of the parties involved.
- Offset
Offsetting is when one party retains their business interests while the other receives a share of the other marital assets that are equivalent to it. It is one of the most popular options and provides a ‘clean break’ divorce with both parties having financial independence from each other. This avenue means business owners can retain full control of their business but it can be complex to reach an agreement which is deemed fair and equitable to both parties.
- Shares transfer
This involves transferring company shares from one party to another. Unlike offsetting, a shares transfer does not involve a clean break. This is because the transfer of shares means couple are still financially linked and there can be ongoing conflicts on how the business is run as a result. However, the process is quite straightforward and means that business owners do not have to sell their companies.
- Sell
In some cases, especially when a mutual agreement cannot be reached, couples decide that the best overall option is to simply sell the business and divide its assets. In some instances, the courts may request that the sale is deferred with one spouse still running it up until a certain set date.
Conclusion
Dividing assets can become complex and acrimonious with an amicable split with both parties in alignment on what happens to the business the most favourable outcome. If you own a business and want to protect it from divorce, there are steps you can take including taking out a pre or post-nuptial agreement and separating domestic and business finances. In all cases, it always advisable to speak to a specialist family lawyer experienced in handling businesses in divorce.