Divorce & Your Business - The Three most Important Stages

If one spouse is going to keep the business and the other is going to be bought out, then it’s vital to establish a fair value.  If the business is substantial then the court will usually order an independent forensic accountant to act as a ‘single joint expert’. 

 A report on value will take into account matters such as the sector the business operates in, historical financial results, the current balance sheet and profit and loss account and other financial data such as the history of dividends and level of borrowing that the business has.  

If the business is modest in size then it may be that the family accountant can provide useful information about values.  It is important to factor in whether there are taxation implications of a sale or transfer of business assets and this is an area where specialist advice is usually going to be required. 

Again this is something that an expert accountant can advise on.  It can be difficult to extract liquidity from a family business and in those circumstances it is not unusual to set off other assets against it.  

How much money can actually be taken out of the business and how such extraction is structured can form a fundamental part of a divorce settlement.  

Often though, the only way to raise money is to borrow or sell assets (particularly land assets).  It used to be acknowledged wisdom that the divorce court would not ‘kill the goose that lays the golden eggs’ but that notion has long ago been displaced by a much more pragmatic approach.  It is clear and decided law that a judge will order the sale of a business if that is the only way of seeing fairness done between spouses in a divorce situation. 

These three steps equally apply where either husband or wife owns a share of a business with another person(s).  This time though the other business owners may need to be involved and clearly will want to protect the overall value of the business for their and their family’s own benefit.  Again, this is something which as experienced family lawyers we are used to encountering and dealing with but the solutions may often need to be creative. 

It is important to realise that even if a business has come down through one side of the marriage – and possibly for a number of generations – that is not going to prevent a court from using it to fund a divorce settlement if the needs of the other spouse are such that they can only be met in that way.  

Extra caution is required where a non-owning spouse has devoted time and effort to the family business.  The divorce courts are very ready to recognise and reward such efforts on divorce. 

In order to protect a family business, the use of prenuptial agreements is becoming more and more common.  They can be particularly important where other members of the family are already involved before a marriage takes place.  Such an agreement can look forward and set out what the desired outcome would be should the marriage fail.  In that way the overall business can be protected whilst the non-owning spouse can still be treated fairly.  

It may seem a little unromantic to be considering such matters prior to a wedding but our experience is that a properly drafted prenuptial agreement can take considerable pressure off both a married couple and their wider families when it comes to the ownership of the business.  It is possible to draw up a postnuptial agreement after the wedding but these are far less common.