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How business ownership is dealt with in divorce

How business ownership is dealt with in divorce by Lyndsey Kiley banner image

Dealing with business assets on divorce can be one of the most fraught and complex elements of a financial settlement. 

If you are navigating this complex terrain, you might wonder about the fate of your hard-earned business assets and the implications for your financial future. 

Business ownership during divorce proceedings involves a series of intricate legal considerations.

There will be evaluations that require careful attention and expertise.

Let’s delve deeper into how the legal system handles business ownership during divorce and the various possible outcomes.

Understanding the complexity

Understanding how to accurately value and distribute these assets is vital.

Regardless of whether the business was solely built and managed by one spouse, it typically falls under the category of a matrimonial asset, and, as with other types of property, there may well be deep emotions connected with a business, which you may have spent many years growing and developing.

This means its value will be factored into the equitable distribution of property by the court.

This holds true for various business structures, be it sole proprietorships, partnerships, or corporations.

However, certain exceptions might apply to long-standing family businesses, depending on the circumstances.

Preserving the business

Fortunately, the court usually avoids ordering the sale of a business, especially if it serves as a primary source of income for one of the parties.

Instead, it seeks alternative ways to divide the available assets and provide compensation to the other party.

This might involve redistributing investments or property to ensure a fair settlement.

Determining the value

The initial step in the process involves a comprehensive valuation of the business.

Employing the expertise of an experienced accountant specialising in business valuation is often crucial. 

To minimise costs, it’s advisable for both parties to mutually agree on a single expert rather than hiring individual evaluators. 

The valuation process encompasses a thorough analysis of various factors, including the business’s structure, accounts, liquidity, assets, cash flow, borrowing capacity, pensions, and drawings.

In instances where comprehensive data is lacking, the valuer might resort to examining similar businesses for a comparative assessment.

Navigating joint ownership

In cases where the business is jointly owned by the separating couple, it is usually unreasonable to expect them to continue to work together as the divorce proceedings can create complications, particularly in decision-making and operations. 

If an agreement cannot be reached amicably, the court has the power to order a transfer to one party or another if this is permitted by the incorporation documents of the company.

This means one party would have sole ownership and that is usually the preferred method as it provides a clean break.

Resolving via legal avenues

Ideally, the courts prefer amicable resolutions without resorting to extensive litigation.

Initiating negotiations through legal representatives or opting for alternative dispute resolution methods like mediation, arbitration, or collaborative law can facilitate a smoother and more efficient settlement process.

In instances where consensus remains elusive, the court can intervene to decide the asset division.

Potential outcomes

When couples work together in the business, the court aims to create a viable solution that allows one party to depart from the company, whilst receiving due compensation for their share.

This might involve a transfer of shares or ownership to the remaining spouse, with other marital assets offsetting the value of the business. 

In cases where immediate financial resources are lacking, the court might grant one party a continuing financial stake in the business until a future buyout becomes feasible.

Throughout the process, the court endeavours to provide both parties with a fair and equitable resolution, aiming for a clean break whenever possible.

Expert guidance

If you are worried about business ownership and what it could mean during divorce, our Family Law Team can help.

Call our experts on 01772 799 600.

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