I’m getting a divorce: What does that mean for my business?

As an entrepreneur, your business is a significant asset. If you’re married, it might be part of someone else’s assets as well.

If you’re facing a divorce it’s essential to understand the implications for your business and take steps to protect it.

This is primarily governed by Section 25 of the Matrimonial Causes Act 1973, which provides a multi-step process for dividing business assets in the case of divorce.

Read on to get a firm grasp of how divorce affects business assets.

Valuation: the first step

One of the first things to consider when going through a divorce is getting a valuation of any business involved.

A business valuation is a process of determining the economic value of your company, which is essential for dividing assets fairly during a divorce.

There are several methods for valuing a business, including the following.

1. Income approach: This method considers the business’s expected future income and cashflows.
2. Market approach: This method compares your business to similar companies recently sold.
3. Asset approach: This method calculates the value of your business’s assets minus its liabilities.

Working with an experienced accountant or valuation expert ensures your business is valued accurately and fairly.

Dividing business assets

Once you clearly understand your business’s value, the next crucial step is determining how to divide the business assets between you and your spouse.

The courts will consider several key factors when splitting these assets to ensure a fair and equitable distribution.

Length of the marriage

The duration of your marriage is one factor that the courts will consider. Generally, the longer the marriage, the more likely the assets will be divided equally.

However, if one spouse owned the business before the marriage, the court may consider this when deciding on the division of assets.

Financial needs and responsibilities

When dividing business assets, the court will also consider each spouse’s financial needs and responsibilities. This includes factors such as:

• each spouse’s income and earning capacity
• the needs of any children involved
• the standard of living during the marriage
• any debts or liabilities held by either spouse.

The court will aim to ensure that both spouses can maintain a reasonable standard of living after the divorce, considering their individual financial circumstances.

Contributions to the business

Another important factor the court will consider is each spouse’s contributions to the business.

This includes both financial contributions, such as investments or loans, and non-financial contributions, such as working in the business or supporting the other spouse’s business endeavours.

If both spouses have contributed to the business, the court may be more likely to divide the assets equally. However, if one spouse has made substantially more contributions than the other, this may be reflected in the division of assets.

Options for dividing business assets

So, with the above in mind, how would the business be practically divided? There are several options.

1. Buyout: One spouse buys the other’s share of the business. Either by paying a lump sum or through a structured payment plan.
2. Sale: The business is sold, and the proceeds are divided between the spouses according to the court’s decision, or a mutual agreement.
3. Continued co-ownership: In some cases, the spouses may decide to continue co-owning and running the business together. Although this is less common and can be challenging.
4. Division of other assets: If one spouse retains full business ownership, the other spouse may be awarded other marital assets. These could include property or investments, to ensure a fair division.

Protecting your business before and during divorce

Divorce can be challenging, and you might be tempted to abandon your business. But remember that your responsibilities to employees and HMRC don’t cease.

Here are some steps you can take to protect your business amid divorce.

1. Make a prenuptial agreement: One of the most effective ways to protect your business from divorce is to have a prenuptial agreement before marriage. A prenuptial agreement, or prenup, is a legal contract that outlines how assets, including business interests, will be divided in the event of a divorce.
2. Consider a shareholders’ agreement: If your business has multiple shareholders, consider putting a shareholders’ agreement in place. This agreement can outline what happens to shares in the event of a divorce. Helping to prevent disputes and protect the business’s future.
3. Keep business and personal finances separate: If you haven’t already, now is the time to separate your business and personal finances. This will make dividing assets easier and help protect your business from any personal financial issues.
4. Maintain confidentiality: Divorce proceedings can sometimes bring private business information into the public eye. Work with your solicitor to ensure that any sensitive business information remains confidential.
5. Communicate with your team: Your employees may be concerned about the impact of your divorce on the business. Be transparent and communicate with your team, reassuring them that you are taking steps to protect the company.

Get strategic advice

At Team SAS, we understand the complexities of going through a divorce when you own a business.

Our experienced team of accountants can provide the strategic advice and direction you need to protect your business during this challenging time. From business valuations to financial planning, we’re here to support you every step of the way.

We’ll work closely with you and your solicitor to ensure that your business is valued accurately and that your interests are protected throughout the divorce proceedings.

So, if you’re facing a divorce and own a business, don’t hesitate to contact us. We’re here to help you navigate this difficult time and ensure your business remains strong and successful.

If you would like to discuss how we can support your business with our accounting and business valuation services, please get in touch. We look forward to hearing from you.

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