Limited Companies and Divorce
If you own a business, it is likely to form a key part of the financial proceedings upon your divorce or civil partnership dissolution. Our specialist family law solicitors have particular experience handling complex divorce and dissolution matters. Our priority is to find a fair solution that works for you and your family while protecting your commercial and financial interests.
At Crisp & Co, we offer a premium divorce service for individuals with significant and/or complex finances. We are members of the Law Society Family Law Advanced Accreditation for our expertise, particularly in advising individuals in High Net Worth divorce cases and matters involving international business assets.
Our divorce solicitors can provide comprehensive advice about how to deal with business assets upon divorce. Whether you and your former partner own the business together or have individual interests that need addressing upon your separation, we will talk you through your options and provide advice on how to achieve your desired outcome. This could be a clean break that leaves your business intact, the negotiated distribution of business assets, or another solution specifically tailored to suit your needs.
With our assistance, there is little chance that you will need to attend court to sort out your financial matters. Our team includes qualified collaborative lawyers who can expertly guide you through negotiations with your former partner and ensure your best interests are represented at all times.
Is a limited company a marital asset?
It can be. In the course of divorce or dissolution proceedings, the financial resources of both parties must be considered and divided according to factors such as your needs, the needs of your children, your financial obligations and the standard of living you enjoyed before the separation. The resulting arrangement must be fair to both you and your former partner.
As such, business assets such as shares in a limited company, assets owned as a sole trader, or an interest in a partnership can be considered as part of your divorce financial proceedings.
If you owned the company before you got married or entered into a civil partnership, you may be able to argue that it should not be considered a marital asset. However, if the company has generated income and helped you and your partner maintain your standard of living throughout the marriage or civil partnership, it is more likely to be taken into account as a financial resource during the divorce financial proceedings.
How is a limited company divided in a divorce?
If you and your former partner are able to come to a financial settlement between yourselves or using a method of Alternative Dispute Resolution such as mediation or collaborative law (meaning you do not need to apply to court for an independent decision), you have wide scope to divide the company however you please. As long as the outcome is fair to both parties, the courts will not interfere.
There are a range of ways you can ensure your divorce financial settlement is fair when businesses are involved, such as:
- Offsetting – if you have assets of an equivalent or greater value to your business interests, you could agree to let your former partner have a greater share of those assets in return for you keeping the entirety of your business interests
- Buy out – if you both have an interest in a limited company, one of you could buy the other out of the business
- Spousal maintenance – if your business produces reasonable income but has little in the way of capital value, you could agree to pay your former partner ongoing maintenance
- Sell the business
Depending on the option you choose, there will of course be tax implications and other considerations such as provisions on the transfer and sale of shares. It is therefore recommended that you also consult an independent financial advisor in the course of the financial divorce proceedings.
How does collaborative law work?
Collaborative law is a form of Alternative Dispute Resolution that is particularly suited to helping separating couples come to amicable agreements about financial arrangements where complex and high value assets are involved.
It involves attending a series of meetings with your former partner and your respective collaborative lawyers to discuss your financial arrangements in a calm, neutral environment. Your lawyer will be on hand to provide legal advice and negotiate on your behalf. You can also invite other professionals such as accountants and independent financial advisors to give their input. If successful, the result will be a written document detailing the terms of your financial agreement. We can then apply to court to turn the agreement into a legally binding Consent Order that severs your financial obligations towards your former partner.
For more information, please visit our Collaborative Family Law page.
How do you value a business upon divorce?
It is important to get a fair and accurate valuation of your business to ensure the divorce financial settlement reflects the reality of your situation. The risk of inaccurately reporting the value of your business is that if its true value is significantly higher and this comes to light later down the line, the settlement with your former partner could be set aside, opening you up to financial claims.
There are three main things to take into consideration when valuing the business:
- Assets – at least two years’ of accounts
- Cash flow – typically forecasting to around 5 years in the future
- Analysis of comparative business models – typically used if your business lacks assets or you cannot produce a sufficient cash flow forecast
Because of the risks involved, it is important to obtain independent financial advice when valuing the business. Depending on your individual situation, a simple ‘desktop valuation’ may be sufficient – usually if the company is small or you and your former partner trust each other. In other cases, it may be necessary to instruct a forensic account.
Disputing the valuation of a business
The valuation of a business can be a contentious issue for divorcing couples, particularly if only one party is involved in it. If your former partner is not cooperating with the valuation, you think they are undervaluing their interest, or you simply do not agree about the value, we can help you seek the truth by applying to court for the information.
Can my spouse claim half my limited company?
In theory, your former partner could claim that they are entitled to a share of your company even if they have no interest in it. However, the courts tend to be reluctant to disrupt a business where there is another option, such as to offset the value.
Ultimately, whatever settlement you come to must be fair to both you and your former partner. If you need your company to be left untouched, this may mean agreeing to increased spousal maintenance payments or allowing your former partner to keep a greater share of the assets.
Will my company have to be sold as part of my divorce?
A sale may be one of your options, for example, if the business does not produce much income and you have little in the way of other matrimonial assets or you cannot afford to buy out your former partner’s share. However, it is unlikely that any court will force you to sell your business, particularly if it provides your family’s income. We will help you explore every possibility to find a solution that works for you and your family.
How to protect your limited company in a divorce
One effective way of protecting your limited company is to put in place a pre-nuptial agreement or post-nuptial agreement that sets out how the business should be dealt with in the event of relationship breakdown. This could dictate how the business should be split or even explicitly exclude the business from divorce proceedings.
Although pre-nups and post-nups are not technically legally binding, the courts are giving them greater weight subject to certain requirements being fulfilled. For example, both parties must have received independent legal advice before signing the document and the outcome must still be fair to both you and your former partner.
Other ways you can protect your limited company include:
- Do not use your family home to secure business assets
- Keep your partner separate from the business – do not appoint them as a director or give them shares
Although these are not infallible methods, taking these steps could reduce the likelihood of your former partner making a successful claim.
What to do if your business partner is getting a divorce
It is understandable to feel concerned if your business partner is getting a divorce or civil partnership dissolution. However, it is very unlikely for a divorce court to make a decision about a company that would negatively affect a third party. It may be possible to ringfence parts of your company or otherwise protect it from the effect of financial claims, such as:
- Putting in place a Shareholders Agreement that sets out a method of valuation and place limits, for example, on the transfer of shares
- Putting in place a Partnership Agreement to set out provisions in the event of one of the partner’s relationship breakdown
Get in touch with our divorce solicitors today
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