Business and divorce

Posted on November 27, 2013 in General

The phrase “and with all my worldly goods I thee endow…” sharpens into focus when you are considering a divorce. It is doubtful that you were thinking about your business assets when you recited your wedding vows, but your spouse may be thinking about them now.

As a specialist family law solicitor within the Wolferstans Divorce and Finance Team, I deal with the financial implications of a divorce.

Here are some questions I am often asked by clients:

How will the business be treated if I get divorced?
Every case is different and many factors have to be taken into account, but a family business is treated as an asset just like the family home.

What factors are taken into account?

If a business has started after the marriage this will be considered marital property. On the other hand, if the business predates the marriage, its initial value could qualify as non-marital property, but any increases in value that occur during the marriage would be taken into account.
One of the principles in divorce cases is that the family’s assets should be shared on a basis which reflects the respective contributions of the parties. Often this causes the assumption by clients who own the business, that their entitlement should be greater as the “breadwinner”, than the contribution of their spouse. This however, is a false assumption. The reality is that a spouse is likely to be entitled to a share of the value of the business even if they had no direct involvement in it.
The court has to decide on an appropriate division of assets and this will be tested against the yardstick of fairness and equality, which for most cases will be a 50/50 split. Unless you can prove you have made a ‘stellar’ contribution to the success of your business.
The length of marriage will determine the scale of the settlement. The longer the marriage, the more equal the split, particularly if there are children. In shorter, childless marriages where the spouse has played little part in the business, means you may hang on to much more.

Does this mean the business will need to be sold ?
Where the business is producing sufficient income to support the family, the court will be reluctant to order a sale as that would cut off the income stream. In most cases, business clients could be able to refinance and keep their business afloat, although in difficult economic conditions it could prove tougher to get that bank loan.

With proper planning, parties could sign an agreement identifying exactly their interest in the business. they could also specify buy-out provisions.

These are some of the principles in divorce cases that I am often asked to advise upon. If you are a business owner and are considering divorce, you should seek expert legal advice as early as possible.

Questions to Ask a Family Business solicitor

Have you specialist skills in dealing with family businesses and divorce?

Wolferstans have a team of family law specialists who routinely advise clients who have businesses.

Do you have a network of professionals who you can call on to help you with the complexities?

Wolferstans have a network of other professionals that we could refer you to for advise on taxation, succession or company law issues.

If you don't get satisfactory answers to these questions, keep looking! For further information please contact Miss Mala Mandalia Tel – 01752 292204.