When your marriage breaks down, it can lead to concerns about how your business and assets will be affected.
A limited company can represent years of hard work and financial investment. Whilst it may feel separate from your marriage, it is often included in the financial negotiations of a divorce.
Our family and divorce law expert, Karen Bishop, explains how businesses are treated in divorce and how to protect yours.
How is a limited company valued during a divorce?
As part of financial disclosure, both spouses must list all assets, including any business interests, in their divorce proceedings.
If both parties cannot agree on the company’s value, the court may appoint an independent or forensic accountant to provide an objective valuation.
Although there is no set approach for valuation, in the Family Court, the income approach is a common way to assess the business’s value and earning potential.
The income approach is used to estimate a business’s future earnings and applies a risk-based approach discount rate to determine its present value and capacity to generate future income.
However, valuing a limited company is rarely straightforward and the accountant must consider the future profits and turnover.
A last resort for some couples is liquidating assets, but this can be difficult and the court may discount the valuation or balance with more secure assets to be awarded to the spouse.
Is your spouse entitled to half of the business?
When dividing marital assets, the court’s priority is fairness and shares do not always need to be equally divided.
Common outcomes include:
- Retaining the business while your spouse receives a greater share of liquid assets
- A structured buy-out, potentially over time, if funds cannot be released immediately
- Selling shares
- Joint ownership, due to ongoing financial ties
The court will consider factors, including the length of the marriage, financial and non-financial contributions, children’s needs, earnings and both parties’ future requirements.
How to protect your business before a divorce occurs?
Planning is the best way to protect your limited company and this can begin with pre-nuptial or post-nuptial agreements.
These agreements allow couples to agree in advance how business assets should be treated if the relationship ends.
Whilst they are not automatically binding, courts will respect them if they are fair and properly drafted.
Legal commercial contracts, such as shareholder agreements, can also include clauses requiring shareholder approval for share transfers, buy-back rights if a shareholder divorces or pre-emption rights for other shareholders.
Keeping your business and personal finances separate can help set a clear distinction between your company and marital assets.
In some cases, holding shares through a trust or structured ownership can offer additional protection.
With the right legal advice, we can help you protect your assets and manage them later in financial settlements.
How can our expert guidance help?
When businesses’ assets are involved in divorce, early legal guidance can help you clarify valuations and negotiate a fair settlement.
Planning can reduce disruption to your business operation and putting measures in place can mitigate disruptions before they arise.
If you are a business owner facing divorce or wish to protect your company’s future, our expert family and divorce law team can help.
Are you in need of help drafting a fair settlement? Contact our expert team today.