Am I entitled to a share of the family business on divorce
By Vanessa Lloyd Platt, Lloyd Platt & Co
Divorce is never easy, especially when it involves complex matters such as business assets. For business owners facing divorce, the process can be particularly daunting as they strive to protect their hard-earned company assets while navigating the intricacies of marital dissolution.
In such challenging times, seeking expert legal advice becomes paramount. This is where Lloyd Platt and Co step in, offering specialised guidance tailored to safeguarding business interests amidst divorce proceedings.
Understanding Business and Divorce
The value of a family business owned by one or both of the parties will always be taken into account by the Court when it considers which financial orders to make upon a parties’ divorce or dissolution.
However, valuing and dividing these assets can pose significant challenges. Where business is involved, various factors come into play, including its structure, profitability, and ownership dynamics.
Precisely how the Court will deal with the value of a business will depend on the individual circumstances of each case. For example, a family run business going back generations will be treated entirely differently to one created during the course of the marriage, and to which both parties have contributed.
If created during the marriage, it is likely the parties will be considered to be entitled to an equal share of the value of the business due to it being regarded as “matrimonial property”.
With an established family run business, it is far more likely to be seen as wholly matrimonial property and the Court’s jurisdiction will be fully brought into account to consider whether a proportion of this should be awarded to the other party. This consideration will be based on the needs of the parties rather than on the principle of sharing.
How are businesses divided during divorce?
The usual outcome in a case involving a business is that the business is left entirely to one party while the other party receives other assets, or marital assets, such as cash or property.
In the groundbreaking case of Wells v Wells, the Court said that while it is intended to arrive at a clean break between the parties i.e., a full and final financial settlement, sharing is achieved by a division of both the copper bottom assets and the illiquid and risk laden assets.
What this means is that one party should not be given all of the risk-laden assets and liabilities in a divorce settlement, leaving the other one with the house, household finances and liquid assets. It would be unfair to load risk onto one party and not the other.
The Court will therefore consider all of the nature of the assets so that there is a fair division of both the capital, cash, properties etc and may discount the value of an illiquid asset as it contains a risk for the party who holds them.
It is rare for both parties to retain shares in the same family company. In a case in 2017, known as WM & HM, Mr Justice Mostyn describes the transfer of shares in the husband’s company to his wife as a matter of last resort and antithetical to the clean break. This means that divorce cases should work towards parties’ independence but by transferring the shares the wife was forever connected.
The Role of Business Valuation
One of the fundamental questions in divorce involving a business is: How is my business valued in divorce? Valuing business assets in divorce accurately is crucial for equitable distribution during divorce proceedings.
In the first instance, on documents of disclosure known as Form, the party who owns the business will be asked to set out what they consider to be the value of the business for divorce purposes. Mostly these are accurate if it is undertaken on the advice of the party’s accountant.
Lloyd Platt and Co boasts a team of experts well-versed in business valuation methodologies, ensuring that your business’s true worth is determined fairly and transparently.
Safeguarding your interests
Sometimes, however, parties will try to deliberately undervalue their business or state that the business has no value at all. If clients believe that this is untrue, then this firm will usually consider applying to the Court for the appointment of a forensic accountant, either on a sole basis or jointly with the other party. They will value the business, consider the earnings and income that could flow from it and the ability of one party to raise funds from the business in order to pay to the other.
Difficulties can arise if the parties have set up and run the business together throughout the marriage – who should retain the business, or could the parties continue to remain in the business and run the same for the foreseeable future?
Further options are that the business may have to be sold or that one party will buy out the share of the other. It is in the latter case that it is very important to establish the true value of the business that is being sold out to the other party.
If parties are to retain business assets in divorce, it is very important to consider what can be done to ensure that the other party does not try to dilute the value of the shares that are being held by either issuing further shares of a different nature or any such other actions.
This firm will carefully consider with each husband or wife these issues, in particular if there has to be any other agreements put in place to protect the shares retained in a company on during divorce proceedings.
Expertise in Business Structures
Business structures vary widely, from sole proprietorships to partnerships and limited companies. Each structure comes with its own set of complexities, particularly when it comes to divorce. Lloyd Platt and Co’s deep understanding of business structures enables them to navigate these complexities adeptly.
Whether you’re a sole trader, a director of a limited company, or a partner in a business venture, our solicitors provide tailored guidance to safeguard your interests and ensure a fair division of assets.
Safeguarding Your Shareholders’ Interests
For businesses with multiple shareholders, divorce can pose unique challenges. The interests of shareholders must be carefully safeguarded to prevent disruptions to the business operations. Lloyd Platt and Co’s expertise extends to protecting shareholders’ rights and interests during divorce proceedings.
Whether it involves drafting shareholder agreements, negotiating buyouts, or resolving disputes amicably, our team ensures that your business’s continuity remains intact amidst the tumult of divorce.
Navigating the Complexities of Small Businesses
Small businesses are the backbone of many economies, yet their owners often face heightened challenges during divorce. Lloyd Platt and Co recognises the importance of small businesses and provides tailored solutions to protect their interests.
Whether it’s preserving the livelihood of a sole proprietor or safeguarding the future of a family-owned enterprise, our solicitors offer compassionate guidance and robust advocacy every step of the way.
Contact Lloyd Platt Today
In the tumultuous landscape of divorce, safeguarding your business assets requires expert guidance and strategic advocacy. With Lloyd Platt and Co divorce and business solicitors by your side, you can navigate the complexities of the divorce process with confidence, knowing that your business interests are in capable hands.
If you want to discuss any aspect of business assets in divorce, please fill in our form below, call us on 0208 343 2998 or click to contact our divorce lawyers in London.
