If you are separating and have a business, you will no doubt have many questions that will need answering. Below, we answer 3 common questions which arise when considering businesses on divorce:
1. Will the business need to be valued?
The starting point is to obtain a valuation of the business. However, valuing a business is not as straightforward as valuing other assets. Usually a forensic accountant will need to be instructed to value the business, although depending on the nature of the business, other experts may be required, such as a Chartered Surveyor.
In some cases, a business may not have any capital value but provides an income for one or both of the parties. In such cases, expert evidence may still be required to look at the likely income that the business can produce.
2. Will the business be considered an asset?
A business is not usually an easily realisable asset and will generally be treated differently from assets such as properties or cash investments. The general principle, however, is that all matrimonial assets will be shared on divorce. A business which is established and run throughout a marriage by one or both of the parties will generally be classified on divorce as a matrimonial asset.
Many businesses, however, do not have a capital value and are simply income providers. In those circumstances, the court would not necessarily consider the business as an asset, but as an income stream to one or both of the parties.
3. Can the court order a sale of the business?
Although the court do have the power to order the sale of a business, they will always try to avoid this if at all possible.
There are many options available to the Court before considering a sale of a business and much will depend upon the nature of the business, any other shareholders or directors and what cash is available.
An option may be for one party to 'buy out' the others interest in the business by paying a lump sum. If a lump sum cannot be raised, the court can look at ordering spousal maintenance, if the business is able to generate a sufficient income to sustain such payments.
Offsetting business interests against other assets may also be another option. For example, if there is a jointly owned property or sufficient savings, those can be divided unequally between the parties or transferred entirely to one party to 'offset' interests in the business.
About the Author:
Ellie Jones is a Partner in our Lincoln Private Matrimonial team. She regularly deals with complex financial matters involving significant assets including businesses and private and public sector pensions.