If you run a family business, divorce might be a little more complicated than for most. The business will need to be valued so that this can be taken into consideration as you untangle your finances. If there are disputes, this can significantly increase your costs, so negotiating this with your soon-to-be ex-spouse early on can help to keep costs down.
How are business interests determined?
The way your business is valued during the divorce process will depend on where you are getting a divorce. In England, Wales, and Northern Ireland, the value of the business is added to the matrimonial assets which are to be divided. In Scotland, the business will only be considered as a marital asset if they were set up or acquired after you got married or became civil partners.
How will the value be divided?
Unlike a home, it isn’t always in the best interests of either party to sell a business to divide up the value. Instead, courts will seek to leave one party with sole ownership of the business and to then compensate the spouse with other assets or additional maintenance. This is why establishing an accurate valuation is essential.
The courts will also be flexible where required. Both parties may want to retain shares in the business, and the courts will be receptive to this if required. What should be avoided is one party having access to all the cash assets while the other is left with assets that are tied up in a business. Unfortunately, this is often the case.
Who is responsible for valuing the business?
Either party can arrange for the valuation. This is an essential step in reaching a financial settlement. Once the value of the business is established, you can then decide how you want to divide this up. If one partner owns a business outright, they will have to arrange the valuation.
How is a business valued before divorce?
Valuing a business can be very complicated and will require an expert accountant. They will have to look at things like:
- The assets and property owned by the business, including business stock and equipment.
- Potential future earnings, which can take into consideration future contracts.
- The legal structure of the business. In the case of a limited company or partnership, there may be other people outside of the marriage involved. In this case, the business assets would need to be divided between the directors according to their shares.
Can I dispute the value?
Unfortunately, it isn’t very hard to conceal the true value of a business if you want to keep something back from a partner. While the value of assets such as stock and property will be difficult to dispute, future profit can be skewed to make a business appear less valuable.
If you suspect that your partner has reached a value that is not accurate, there are steps you can take to dispute this. If you suspect your ex-spouse is not being honest, you can apply to the courts to request the financial information directly from their accountant.
Why business structure matters
If you were involved in the formation of the company, you will likely have a firm grasp on how the business was created and the legal structure. However, it’s worth refreshing your knowledge to make sure you know what the business structure is and how this will affect the valuation and division of assets.
As a sole trader, there is only one owner and they control all business assets. If your partner is a sole trader, their income and profitability are the most important numbers. Other assets like premises and vehicles may also be considered.
In a partnership, the valuation gets more complicated. This is particularly in the case of married partners forming an informal business partnership where one is effectively acting as a sole trader. If your ex-spouse has a business partnership with someone outside the marriage, this will also need careful consideration during the valuation. Anyone in business with someone going through a divorce may feel stuck in the middle, as the value of one half of the business needs to match the other half.
In a limited company setup, there may be many business directors. If you and your partner own all of the shares, then this can be simply divided down the middle. If there are other people involved, then the business value will be based on your shares in the business.
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