Limited Companies and Divorce

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.

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.

In the UK, a divorce can have a significant impact on business assets. When a couple goes through a divorce, business assets are considered part of the marital pot, and are therefore divided between the divorcing spouses. How the business assets are divided depends on the case and circumstances.

There are several ways that business assets might be divided during a divorce, for example, if both parties have an interest in the business, one spouse might buy the other out.

Where one party is the sole owner of the business, and does not wish to divide the company with their ex-spouse, they may instead agree to allow their ex-spouse to take a larger share of a different marital asset, (an option that’s known as ‘offsetting’).

If you own a limited company, it is not automatically protected in the event of a divorce. Where one partner acquired the company before getting married, it is still likely that the company will be considered part of the marital pot, and consequently, divided between both spouses during divorce.

To protect your limited company in the event of a divorce, it is important that you work with a specialist divorce and finances solicitor. They will be able to help you with the best strategy for your circumstances.

In a best case scenario, if you are preparing to get married, and you own a company, you would make provisions beforehand, to protect yourself in the event of a divorce. There are various ways that you might do this, including:

• Creating a prenuptial agreement, or a postnuptial agreement, specifying business ownership, and what would happen to the business in the event of a divorce
• Transfer some business shares into a trust, which would offer improved protection in the event of a divorce

Where no provisions were made to protect the company before or during the marriage, our divorce solicitors can support you. For instance, we can help you to negotiate with your spouse using alternative dispute resolution methods, helping you work towards an outcome that’s fair in the circumstances.

If you have any questions about divorce and limited companies, please don’t hesitate to get in touch with our expert team.

Divorce can be particularly complicated for limited company directors. Due to this, navigating the processes effectively and understanding the implications is crucial.

If you are getting a divorce as a limited company director, our expert team can help you make all of the key considerations, taking the necessary steps to protect your interests as far as possible.

Each situation is different, and so we will always align our support with your situation. Generally speaking, we can help limited company directors in the following ways:

• Representing you in alternative dispute resolution or court processes
• Using the above processes to ensure a fair valuation and outcome for the business that reflects your contribution as a director
• Referencing any prenuptial or postnuptial agreements that were made previously to protect your business. Ensuring that these are considered as part of a financial settlement

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 it’s 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.

Divorce can have a significant impact on business partners. It could be that the divorcing partner’s spouse has a claim to part of the business and/or assets. This situation has the potential to negatively impact the financial health of the business, as well as disrupting operations.

If you run a company along with a business partner, or partners, it is recommended that you take steps to protect your own interests, as well as those of your business partner.

Our experts at Crisp & Co can help you to take steps to do this, for example:

• Choosing to transfer certain company assets into a trust, meaning that these assets will be protected in the event of a divorce
• Entering into a prenuptial or postnuptial agreement, to outline how the business would be treated if one of the business partners were to get divorced

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.

Our team includes qualified collaborative lawyers, Henry Crisp and Carol Christofi.

For more information, please visit our Collaborative Family Law page.

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.

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.

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.