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How will my business be valued in a divorce?

How do I protect my business in a divorce?

Will my business be considered in a divorce?

Essentially, yes. In a divorce, your business is considered as an asset. Its value will be included in the 'matrimonial pot' which may be divided between you and your spouse by the Court.

Must I disclose my business in a divorce?

Any interest that a party has in respect of a company will need to be disclosed as part of the duty of full and frank disclosure. How heavily the business will play as a role in the divorce will depend upon the nature of the business, for how long it has been running, and the involvement the spouse has in that business.

Does it matter what the business structure is?

The legal status of the business can affect the way it is treated in the divorce. There are three basic structures:

1. A limited company – this is a separate legal entity which means that the assets are owned by the company and not by each individual director.

2. Partnership – the assets of the partnership will be owned jointly by two or more people, either equally or in accordance with the partnership agreement.

3. Sole Trader – this is essentially a one-person band where they solely own all the assets.

Once the structure of the business has been determined, it will be necessary to look at the value of the business in terms of tangible (accessible) and intangible (non-accessible) assets. It will be necessary to look at the history of the trading profit and look at the estimated future growth of the company. There are items which are usually held in the assets of the business. For example, in farming or manufacturing business, both businesses can include equipment which can be considerable and expensive. Business income takes a variety of forms, such as salaries, share options, drawings, and expenses, and all this must be analysed and valued.

Ensuring an accurate and fair valuation of the business is essential. The valuation may vary depending on the structure of the company, the profit of the business as well as many other factors.

Specialist accountants are usually instructed to value a business, and we can recommend experienced valuers to you who are experts in this field.

How will the court deal with my business?

If you were established in your business before your marriage, it may not fall into the matrimonial pot. This is the general rule of thumb for assets already owned before marriage. However, this does need to be balanced against fairness and it is likely that the Court may award the other spouse with a share of the increase in value of the business, from during the marriage.

If you are keen to protect your business, then you will be relieved to know that the Court usually shows the willingness to leave business structures in place and to enable them to continue as a going concern. However, whilst it is unlikely that you would need to sell or transfer your business, you may need to offset any interest which your spouse has in your company, by providing another asset instead.

In this situation it is vital to get the best possible legal advice on the range of options for protecting your business.

What can I do to protect my business before I marry?

If you are not yet married, you may wish to enter into a pre-nuptial agreement to protect your assets, as far as you are able.

Must we have a Court order to divide our assets?

If you manage to reach an agreement with your spouse about how your finances are to be divided on a divorce, you must ensure that the agreement is set out in a consent order which will need to be filed with the court for a Judge to approve. Absence of this Court order leaves you vulnerable to future financial claims.

Estella Newbold-Brown at Amphlett Lissimore is an expert divorce lawyer in London and has nearly two decades of representing and advising clients in respect of divorce including the best ways to deal with business assets as part of a financial settlement, in both the UK and overseas.