Getting divorced is never easy and it is not something that people tend to plan for when they look to the future. Similarly, when spouses go into business together, they rarely consider making a commercial agreement as they don’t anticipate the romantic relationship or business relationship coming to an end. As a result, divorce can be even more challenging where you and your spouse run a business together.
It is estimated that there are over 5 million family businesses in the UK, generating almost a third of UK GDP and employing 14 million people.
During the divorce process, emotions are raw and can often make decisions more difficult. When you divorce your business partner, you may be facing both the end of your marriage and the potential loss of a long-term business dream. We understand how hard this can be. In this article, we answer some of the most common questions about what happens when you divorce when you own a business together.
Will I Lose My Business?
All marital assets will be considered when going through a divorce or dissolution of a civil partnership. This would include assets such as property, investments and also a jointly owned business. If no prenuptial agreement or commercial agreement is in place, then the business would be considered a shared marital asset.
It is uncommon and unlikely that you will lose your business or have to sell if you do not want to. While the court does have the power to order the sale of a business, it is very careful in using this power. After all, a successful business is likely to provide for you and your family for years to come, so it would not be in your interests to sell it off.
Reaching Agreement About the Future of the Business
The most straightforward way to determine what will happen to your business is to come to an agreement with your spouse. With the help of your solicitors and some careful negotiation it may be possible to find common ground and agree on how to manage the business as you navigate your divorce and in the future.
In some cases, couples are able to continue to run the business and have a good working relationship. Depending on the circumstances of your separation then this might not be viable. You could explore the possibility of a buy out with one business partner stepping away from the business, you could split the assets and sell the business, keep an interest in the business but be less involved in the day-to-day running of the business or the business could be transferred to one person in exchange or in place of other assets such as property or pensions.
It is important to reach an agreement which is fair, reasonable and the best decision for your family.
Disagreeing Over the Family Business
If you cannot come to an agreement, or one party wants to buy the other out, the business assets must be valued. In many cases, the business assets will not be equally split. Examples of this might be when an agreement has been drawn up or where one party spent more time building the business.
Furthermore, if one party is retaining the business and buying the other out, consideration often needs to be given to the fact that the departing spouse is receiving cash (which is inherently risk-free) whereas the other is still running the company (risk-laden), and so it may be appropriate to apply a discount to the lump sum.
If a large sum of money is to be paid, then some careful thought will need to be given to how that should be structured, ie a one-off lump sum or – more commonly – payment by instalments.
Lastly, there are tax implications which need to be thought about, and specialist accountancy advice will need to be sought.
Dividing business assets can be complicated, so we would always advise seeking specialist legal advice on your position. The early involvement of the company accountant is also useful.
Advice on Divorce as a Business Owner
Our Family Law team at Lamb Brooks have experience dealing with complex divorces including international divorces and divorces involving property portfolios and family-run businesses. Our expert solicitors understand the intricacies, financial implications, and the emotional complexities when it comes to dividing assets involving a business. Matters of this type often require a ‘team-based approach’ and we are adept at collaborating with fellow professionals to help reach amicable and financially-sound outcomes.
For a Fixed Fee appointment to discuss your personal circumstances and seek advice on the best route to approach your separation and secure the best future for your business, please call our Family Law Team on 01256 844888 or email enquiries@lambbrooks.com.
We can arrange a meeting to fit around your busy schedule by holding meetings over the phone or via Teams/Zoom. Alternatively, we can offer a quiet, comfortable space in our town centre offices to help you find a way forward.
Other articles you may be interested in reading:
The Tricky Business of Divorce
Farming & Divorce: Fielding a Fair Outcome
5 Things You Should Know at the Beginning of a Divorce
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.
