What happens to a family business on divorce?

When there is a family business, it will form part of the financial settlement in divorce proceedings.  A ‘business’ includes limited companies, partnerships and sole traders.

It is in the interests of both parties to reach an agreement amicably without the stress, cost and delay of court proceedings. It is advisable to seek prompt specialist advice, from a family law practitioner and other relevant experts, including an accountant. 

The first step is for the parties to try to agree about the value of the business. 

In cases where the business purely provides an income with no realisable capital, the value can usually be ascertained by looking at the net assets on the balance sheet. 

In cases of private companies with realisable capital, an expert can be jointly instructed to provide a valuation. There are often challenges in trying to establish a reliable valuation, for example, the profitability of the company may be volatile, or it may be a niche company with limited comparables in the market. 

When deciding how to deal with business interests, there are various options. Every case is different and careful consideration must be given to your approach, taking into account all the circumstances of the case.  

If the business purely provides an income, it may be appropriate to agree a maintenance order in favour of the spouse not involved in the business. 

In the case of a limited company, one option would be for the parties to agree a value, and leave the business with the spouse running the company, if there are other assets and/or maintenance available to adequately compensate the non-business owner. This is often what the parties want and provides for a clean break.  

Another option is for the parties to agree to both have shares in the company. This is appropriate where the income of a business is uncertain and it is considered fair for both parties to be subject to profit or loss. A downside is that this will continue to tie the parties together. 

A third option is to agree the business is sold and the net proceeds of sale to be divided between the parties. This provides a clean break and may be appropriate if neither party wishes to continue with the business. 

For more information please contact Samantha Sinclair, Head of the Family Department at Ware and Kay on York 01904 716000 or email samantha.sinclair@warekay.co.uk