Senior Associate, Harriet Errington, discusses five things to consider when a business is involved in divorce proceedings.
Dividing business assets in the context of divorce or dissolution proceedings can be extremely difficult and business can often be the most valuable asset a couple own. We have answered five commonly asked questions by those going through a divorce involving a private business.
1. Will my business be taken into account in my divorce? You will be required to provide ‘full and frank disclosure’ of your finances, which includes disclosure of all business assets. Business assets also include shares in a limited company, interest in a partnership and assets of a sole trader.
2. How will I know how much the business is worth?
Attributing a value to your business can be more challenging than valuing other assets such as property. Business assets are treated as “risk-laden assets” by the court and thus they will be treated differently to “safer” assets such as cash and property. In your initial disclosure, you will be asked to provide an estimate of the value of your share of the business, which may be supported by evidence from your accountant. If your partner disputes the estimate he/she may apply to the court for an expert accountant to value the business on a formal basis, taking into consideration its structure, the available business assets, liabilities, turnover and various other factors.
3. How does the family court approach family businesses?
The court's approach will depend on the case in question and the individual facts. For example, if the business was set up by you prior to the commencement of the marriage, you could argue that it is the product of your efforts alone and that your spouse made no contribution to its value. Similarly, if a business was inherited, it could be argued that it is a non-marital asset. However, if both parties have worked in the business throughout their relationship, or if the business was founded by one party during the course of a relationship with the full support of the other, it could be argued that its value is a result of the joint endeavor of the parties and should therefore be divided accordingly.
4. Will my business be sold as part of my divorce?
It is unlikely that the court will order a business to be sold unless there is no other way of satisfying your spouse's financial claims through the distribution of other assets. If necessary, the court may try to minimise the impact by staging payments to allow you time either to buy out your spouse through alternative means or to find a buyer on the open market.
5. My spouse is the director and shareholder of a business but I am not, do I still have claim?
The court will consider all of your spouse's assets and his/her income capacity.
Please click here to find out more information about divorce with a business.