We know that divorce is not easy for anyone, but it can become even more complex when there are business assets involved. Businesses come in all shapes and sizes and one size does not fit all. You may have shares in a multinational business, run a kitchen table online business or be involved in a property development partnership. In our latest blog, Solicitor, Rachel Read-Hill answers some of your frequently asked questions regarding what happen to those business assets during a divorce.
What will happen to my business assets during the divorce?
To establish a fair financial settlement, the family Court will take into account the valuation of your business and your accountant should be able to advise you on how to reach an appropriate valuation.
One of the many factors taken into consideration during the valuation process is how the business is owned. For example, if you are a sole trader it will be considered differently than if you are to a shareholder in a limited company.
As a sole trader, you own and control the business assets, but you are also personally liable for any business debts. The income and profitability (usually for the last two years) are the most important figures, although business assets, such as premises or vehicles, will also be taken into account in the valuation figure.
If you are involved in a partnership, then there would usually be a partnership agreement in place, but it could also be an informal partnership, with no written agreement. If it is not a partnership between you and your spouse and there are other partners involved in the business, then valuing it will be more complicated and you are more likely to need expert help.
As with partnerships, valuing a limited company will be more complicated if there are several shareholders in the business. If you and your spouse own all of the shares, it might be relatively straightforward to value. If you are not the only shareholders, then usually only the interest owned by you is taken into account, but this will often involve an overview and valuation of the whole business.
Occasionally upon disclosure of the valuation figure, one party may feel that the business has been deliberately undervalued. If this happens, we would suggest that one of the best ways to achieve an impartial valuation is to instruct an independent forensic accountant where the cost would usually be shared between both parties.
Will I have to sell my business if I am getting divorced?
Not usually. Often, businesses are one of the main sources of income for a family and it would not be a good option for the family to sell the asset and lose the income it provides. All assets will need to be considered and the aim is to reach agreement as to who has what assets, creating a settlement that is fair and meets the needs of both parties and any children.
My business partners/fellow directors are worried about the impact of my divorce upon the business, what should I do?
This is a common concern but as mentioned previously, usually only the interest owned by you is taken into account, however this will often involve an overview and valuation of the whole business which might make them uneasy. In the majority of cases, it is possible to resolve issues without any impact on the business. It is important to get early advice from a specialist family lawyer and your business advisors, such as your accountant, at an early stage.
My partner and I are joint shareholders and directors of our business; will we have to pay any tax if my partner transfers their shares to me?
As part of a clean break order, it is common for shares to be transferred to one party who will retain their interest in the business, often in return for the other party leaving the business with a lump sum payment. Be aware though, that capital gains tax may be payable upon transfer of the shares. There are tax exemptions available and it is therefore important to obtain legal and tax advice in the early stages and before starting any proceedings yourself, as some exemptions and allowances will only be available in the year of your separation.
One of the important things to remember is that no two cases and businesses are the same, so seeking early advice is key to ensure that we reach the best outcome for you and your family. We are experienced in dealing with business assets in divorce and work alongside experts accountants and financial advisors to ensure that our clients receive the very best advice.