The financial fallout of a divorce can be difficult for anyone to deal with, but for people with business assets to maintain, it can be a particularly contentious time. In this post, we’ll list a few effective tips for the division of assets in a divorce.
A divorce is a challenging experience for multiple reasons. Not only is there the emotional trauma of a breakup to deal with, but the financial implications of a divorce can have a huge and long-term impact on your future. For business owners, this can pose a serious threat to financial stability as well as the future of the company, especially in high-net-worth divorce cases, where large sums of money are divided between spouses.
Seek the Advice of Reputable and Experienced Divorce Lawyers
Step one of every divorce should be to seek the counsel of an experienced family lawyer. When it comes to the division of assets in a divorce, even if those involved aren’t ultra-high-net-worth individuals, high-net-worth solicitors have the essential skills and knowledge to assist you to ensure a fair resolution, plus vast experience in legal matters involving significant amounts of money.
By shopping around for a reputable family lawyer with experience handling large business assets, you’ll ensure that you have the best chance of protecting your company from the financial impact of divorce. In the process, you’ll also gain a better understanding of the divorce process and how it relates to your business.
Does My Spouse Have a Stake in My Business?
During the division of assets in divorce, the court’s stance is based on equality between both parties. However, as a business owner or shareholder in a private company, there may be arguments you can deploy to dispute the presumed equal division. You are more likely to be successful if you established the business before meeting or marrying your spouse.
Your first step will be to work out the value of the business assets. This can be initially carried out by your company’s accountant, but if both sides fail to agree on the value, an independent forensic accountant’s report may be needed to jointly value the shareholding. Once a value has been determined, a percentage to which your spouse is entitled will be decided.
How Do Courts Approach Family Businesses?
If possible, the courts will leave the business owner with the company and compensate the other party with a larger share of the remaining marital assets. This is often in the best interests of the couple — one party gets to retain ownership of the business while the other has funds they can invest in new opportunities and avenues.
The difficult thing about this type of approach is knowing whether or not the settlement is fair, as it’s not always easy to put an accurate value on a business and a spouse may have played a significant part in establishing the business. There also has to be some consideration of the company’s future prospects and revenue. The courts can be flexible to achieve the fairest financial settlement, so it is possible that the company income or shares will be divided. While not the preferred choice, the courts may also grant the illiquid assets (those that cannot be easily converted into cash) to one person and the liquid assets to the other, if this is the most reasonable and logical solution.
Family businesses can also bring their own challenges and the court is very alive to the fact that it would be unfair and inequitable to force one party to dispose of their business interests. It is often the shareholding in a business that also produces the income upon which the family have relied – the so-called “goose that lays the golden egg”. The court appreciates that in most circumstances business interests are not going to be realised following divorce and not for many years to come.
The court recognises that a shareholding in a business is unusually not liquid. Cash and property are often referred to as “copper-bottomed” assets. When offsetting an interest in a business, the court will take into account its illiquid nature and apply a discount for that. It is important liquid and illiquid assets are not treated as “lie-for-like” assets when divided the matrimonial pot.
Are you a business owner looking to learn more about the division of assets in divorce? Get in touch today to speak to a member of our expert team of family lawyers.