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Divorce and Business Assets

Leonardo da Vinci

“I love those who can smile in trouble, who can gather strength from distress, and grow brave by reflection”

Many of our clients or their spouses’ have businesses. These include private limited companies, partnerships, sole traders and family businesses.  The team at McAlister Family Law have a wealth of experience in dealing with business assets within divorce proceedings and receive repeat referrals from accountants, corporate lawyers and tax advisers. Fiona Wood in the divorce and finance team, has a national reputation nationally as the “go to person” for divorce cases with a business element.

In addition to advising on how a business is likely to be treated on divorce, we also help on how to protect your business in the event of a divorce by entering into a pre-nuptial or post nuptial agreement.

Common questions on divorce and business assets

Are business assets included in a divorce?

The divorce courts in England and Wales will usually consider all assets in which either spouse has an interest, including shares in a private limited company and partnership interests. They are considered part of the matrimonial pot.

Will I have to sell my business if I get divorced?

Whilst a judge has the power to order the sale of a spouse’s interests in a business, it would be unusual for a judge to order this, unless the spouse who owns the business is keen to do this, as selling a business often means losing a significant income stream. 

How are business assets valued on a divorce?

Some businesses do not have any real value. For example, some self-employed people, such as IT contractors, work through a limited company as this is a tax efficient way of paying themselves. These companies often have few assets, with the company just being a vehicle for the shareholder’s salary. In these circumstances, the company usually has a very limited value and a formal valuation from an accountant would not normally be needed. With other businesses a formal valuation by an accountant will be necessary. 

Businesses are usually valued in one of two ways: -

  1. On a net asset basis – this is how asset rich businesses are often valued, such as property companies. Up to date valuations of the business’ assets are usually required.
  2. On a profit earnings ratio basis – this involves valuing a business by looking at the profit that it generates and what multiplier of profit that type of industry usually attracts when a business of that nature is being sold.

Who should value business assets on divorce?

In divorce proceedings, it is usual for an independent expert to be instructed jointly by the couple to value a business. They are known as the “single joint expert”. If the spouses cannot agree the identity of the expert, a judge will decide which expert to instruct, usually based upon the expert’s experience and their likely fees.

Valuing a business is an art, not a science. If you ask several well-respected accountants to value a business they will all come up with slightly different values. It is therefore important to choose the appropriate expert for you, depending upon whether you are hoping to retain the business, or your spouse will be retaining the business. The McAlister Family Law team have very close links with some of the country’s leading forensic accountants.  As part of your moving forward plan, we will identify which expert would be the most appropriate for your case.

What if part of the business is owned by a third party?  Will this be considered on divorce?

When the single joint expert values the business they will also value the spouse’s interest separately if they are not the sole owner. This may involve a discount being given to the value of the spouse’s interest in the business if they are not the main shareholder.

 

What about tax?

The court will look at the net value of a spouse’s business interests, which is what the spouse would be left with in their pocket if they sold their business interests. The single joint expert will therefore calculate the tax that would be payable if they sold their business interests and deduct this from the value.

What is liquidity?

Liquidity is the amount of money that a spouse can raise through their business without impacting the business. The single joint expert will usually be instructed to look at this as well as look at the business’ value. The tax consequences of taking money out of the business also need to be considered by the single joint expert.

Contact Us

For further advice from one of our experienced family solicitors in relation to how a business is dealt with on divorce, please contact McAlister Family Law by telephone xxxx or email hello@mcalisterfamilylaw.co.uk

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