Divorce and the Family Business
We often find that the family business is operated by both parties to a marriage or civil partnership. The breakdown of the romantic relationship will almost certainly impact the running of the business. This is an additional stress to the parties to the marriage, coming at an already stressful time in their lives. What will happen to the business? This is a common question and we set out here the key information for people facing this scenario.
The key challenge is to achieve a fair settlement without jeopardising the long-term financial health of the business upon which both people may still need to rely.
All assets of a marriage need to be valued as part of the divorce process and determining a valuation for any business takes skill and tends to be a more complex exercise than valuing other matrimonial assets such as the house or a pension.
Obtaining a business valuation
Like all other matrimonial assets, it is likely to be necessary to obtain a valuation of the family business or private company. In order to achieve a fair settlement, it will be necessary to understand what the company or business is worth and what income it generates.
Independent Valuation
It is usual for an independent valuer, often an accountant, to be appointed in order that a true and fair assessment of the business can be made. They will need access to information and business accounts, and this is usually provided by way of ‘disclosure’ when information is provided by the spouse(s) involved in the business.
If any gaps in this information are suspected, the valuer will request that further information is provided in order that they can provide an accurate valuation.
Appointing a joint valuer
This is usual and involves the valuer being instructed by both spouses. The costs will be payable equally in most cases. This is the process which the Court would adopt if a valuation is required.
Factors affecting the valuation
The valuation will depend on a number of factors, including the following:
- Business and ownership structure. Businesses can operate as sole traders, a partnership or LLP, or a limited company with one or more shareholders.
- Employment – if one spouse is an employee of the business, rather than an owner, it may also be necessary to obtain employment law advice. This will depend on the intended settlement of the business asset and whether they are likely to remain involved with the business.
- Business assets – a service may have few fixed assets compared to an investment business with a portfolio of bricks and mortar or a manufacturing business with plant and machinery. Invisible assets also need to be considered – such as goodwill and intellectual property (patents, trade marks, designs or copyright).
- Trading pattern – an analysis of historic trading profits and predicted future income will be essential.
Dealing with the business asset in financial matters on divorce
Once the value is known, consideration will need to be given to how it is to be considered as part of the overall financial settlement. The options for this often include offsetting the business against other assets such as a pension or capital fund such as the equity in the family home, in order that one spouse can still continue with the business unaffected. If that is not possible the court may consider structured payments linked to profits as an alternative option.
The courts will be careful to allow a business to continue as a going concern, and this sometimes means that creative options will be looked at to enable a fair settlement to still be achieved.
How we can help
Obtaining early expert advice is important. We are able to offer appointments to discuss any divorce or financial questions. We are also able and available to discuss children issues and Pre nuptial agreements. Our contact details are below:
Jslater-williams@keelys.co.uk | 01543 420011
mbell@keelys.co.uk | 01543 420031
jcox@keelys.co.uk | 01543 420047