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Are you a business owner and separating from your spouse?

Reasons to choose Wilson Browne

Family lawyers often represent a spouse where one or both of them are business owners within divorce proceedings.

It can sometimes be a worry for business owners to discover that the Court can order the sale of the business.  This is usually the last resort though and will only be done if absolutely necessary. Where both spouses are shareholders, the Court will usually order the transfer to one of them, as they do not want to create business ties after the divorce. There may be an “offset” arrangement in favour of the other. So, the Court may order other assets are transferred, to satisfy their interest that they had in the business.

First and foremost the Court has to consider the valuation of any business. It has two main purposes: to determine the value of the parties’ interests in the business; and establish how that value should be reflected in the final order.

When a valuation is obtained, usually from a nominated joint expert, it is considered a “guide” rather than as absolute for the Court. There may also be instances where the Court does not think that a valuation would be of use. For example, if the business is a sole trader, a business that is simply an income stream for the family or it’s concerned with a small minority shareholding in a quoted company.

The value of a business asset is not treated as “cash in the bank”. The court tries to give each party a proportionate share of the liquid (e.g. cash) and illiquid assets (something that cannot be easily sold or exchanged for cash without a substantial reduction in value), and may apply a discount to illiquid assets, as they are more risk laden.

There are likely to be arguments about whether the business is a “matrimonial” or “non-matrimonial” asset. Particularly if the business was established before the marriage, was inherited or significantly grows after separation due to efforts of one party. This may impact on a final order, although the “needs” of a party may take priority if there aren’t enough “matrimonial” assets to meet them.

Finally, care has to be taken to ensure that a settlement does not “double count”. This may happen if the valuation refers to a future income stream and the spouse is to receive a share of the business and periodical payments from the income the business generates.

While the above only touches on some of the issues that business assets may throw up, what it does highlight is how difficult it can be for a Court to deal with, that specialist expert advice is essential, and if you are getting married that you enter into a pre-nuptial agreement. They may not be binding in statute, but there is a recent sway of case law that supports the Court upholding the terms of pre-nuptial agreements if various formalities have been complied with. So, in a nut shell, it’s better to have one than not.

If you need any advice on any family matter, contact our Specialist Team.