Here is a copy of an article written by Jordans Solicitors Wendy Campbell which can be found in the copy of the Kirklees Business News published today (24/05/2018). Wendy Campbell is a solicitor at Jordans Solicitors based in Wakefield, Dewsbury and Leeds specialising in financial matters upon divorce particularly when businesses are involved.
Now more than ever we have entrepreneurs in our midst, more people are becoming sole traders or entering into partnerships or alternatively being shareholder and directors in limited companies.
Being self-employed in itself can be a stressful business -late nights, early mornings, working weekends, such intensity can lead to strains within a marriage or civil partnership and result in marriage/civil partnership breakdown.
Whilst everyone is more familiar with dividing up property, savings and investment upon divorce/ civil partnership breakdown what about the business?
Is my business taken into account?
Businesses do form part of the family assets to be shared on divorce/civil partnership breakdown. Unlike land/buildings, investments and savings an interest in a business can be complex to value and can often be illiquid. When the courts ask for the parties financial circumstances to be disclosed the courts will expect the business interest be valued alongside other family assets. The value is then added to the balance sheet with the other assets for the court to consider the total matrimonial assets.
Will my business be damaged?
The courts are not in a habit of damaging businesses and will look at the business as a useful resource. As the business owner you may want to retain and protect the business, this may be the best option if it produces a good income for you and allows you to pay your former spouse maintenance if deemed appropriate.
The court will want to know if any money can be drawn from the business to fund a financial settlement, or if the business can be left with the business owner whilst compensating the other spouse with a larger share of the other assets. There may be a risk factor to this as it could leave the business owner with illiquid assets (risk-laden) and the other spouse with the liquid assets.
What if I share my business with other directors?
The courts may also consider whether there is a possibility of borrowing against the business or any assets it may have in order to achieve a settlement. If you are the sole owner of the business and there are no other shareholders/directors it may be difficult to argue against this approach. Where there are other owners in the business the courts will not seek to damage their interest by forcing sale or forcing borrowing against the business.
What if I inherited my business?
You may be able to argue that the business should not form an asset of the marriage/civil partnership if inherited, or if the value of the business can be attributed specifically to the contribution of one party. This does not mean it would be ignored by the courts but may result in the court moving away from the equality approach that it tries to adopt.
I’m in a Partnership not a Limited Company – is that any different?
Some businesses like partnerships usually just represent income streams with no capital value if there is nothing to sell and so the income that the partnership brings in is of relevance to the court.
Could the courts force me to sell my business?
To conclude it is very unusual for a business to be sold to satisfy a matrimonial settlement, but more usual for the business owner to retain the business and the other spouse to receive money from outside of the business and/or maintenance to be paid from the income that the business brings in.
Should you find yourself in the breakdown of a marriage or civil partnership please do not hesitate to contact Wendy Campbell on 01924 387110 who can give you advice and assistance on this or any related family law matter.