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Dividing business interests on divorce or dissolution

Sorting out or valuing a family business during divorce or dissolution can be complicated. But the more you can agree, the less it’s likely to cost you. Find out where to start and what your options are.

Business interests and financial settlements

In England, Wales or Northern Ireland

Usually, only the interest owned by the party divorcing or separating is taken into account. But this will often involve an overview and valuation of the whole business.

In Scotland

Business interests will generally only be taken into account as ‘matrimonial property’ if they were set up or acquired after you were married or became civil partners. But any increase in the value of pre-existing business interests while you were married or civil partners might be counted as matrimonial property.

The rules are quite complicated, so it’s worth getting legal advice.

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How courts deal with businesses in financial settlements

If it’s possible, the courts tend to leave the business owner with the business and compensate the other spouse with a larger share of the other assets and/or maintenance.

Very often, this is what the couple want themselves.

The courts can be flexible. For example, it might be possible to share the income or divide the shares.

The courts prefer not to leave one person with all the cash assets and another with assets that are tied up in something like a business. But in practise, they often do just that.

Valuing a business

If you and your ex-partner (husband, wife or civil partner) own a business outright, or have a significant shareholding in a business, it would usually be valued for the financial settlement.

For shared business interests, either of you can arrange a valuation.

Generally, if one of you owns it – outright or with others – they have to ask for the valuation.

The process might not be straightforward, especially if the business is privately owned.

Valuing a business might depend on:

  • its assets – for example  property or stock that it owns
  • its earnings –  the profit it’s expected to make in future
  • the structure of the business – whether it’s a limited company, sole trader or partnership.

Valuing a business can be complicated and, as a result, can cost thousands of pounds. Before you arrange for an expert, it’s a good idea to get some legal advice.

Understanding the different types of business structure

There are different ways to structure a business.

If you’ve been involved in the business, you’re likely to know the difference between them. But if it’s your ex-partner’s business, you might not know how the business has been set up.

Here’s a quick overview:

Sole trader: the owner controls the business assets, but they’re also personally liable for any business debts. The income and profitability are the most important figures. Although business assets – for example,  premises or vehicles – might also be taken into account.

Partnership: this might be an informal partnership, with no written agreement, or a formal one. If other people – apart from you and/or your ex-partner – are involved, then valuing it will be more complicated and you’re more likely to need expert help.

Limited company: as with partnerships, valuing a limited company will be more complicated if other people have a stake in the business. If you and/or your ex-partner own all the shares, it might be relatively straightforward to value.

Disputing a valuation of a business

Couples who are divorcing or dissolving their civil partnership might not always agree about how much a business is worth. Especially if only one partner has been involved in it.

Sometimes, the business owner might appear to undervalue their business.

What if you don’t agree with the figure your ex-partner says the business is worth and they’re not being co-operative? Then you can apply to the court to get information from their bank or accountant directly.

It’s worth bearing some things in mind:

  • Using experts to help you get a true value of the business can be expensive. In some cases, people have spent thousands of pounds on specialist accountants. But this might be the only option if your ex-partner is being uncooperative or provides a particularly low valuation.
  • The fortunes of the business might have taken a turn for the worse recently. Just because the business was doing well last year, or the year before, doesn’t mean it’ll be doing well now.

Business owners can be optimistic about their own business and you might have been led to believe it was much more profitable than it really is.

Resolving a dispute

Do you think your ex-partner has undervalued the business (or the increase in the value of the pre-existing business while you were married or in a civil partnership in Scotland)? Then you have several options:

  • You can ask your solicitor (if you’re using one) to look at the company’s books to see if it’s worth investigating further.
  • You and your ex-partner might agree to use what’s called a ‘single joint expert’ to value the business. This person is independent and there to provide an impartial valuation. It’s important to get legal advice before you do this.
  • You might each use your own expert. This is likely to be the most expensive and complicated option and isn’t used very often.

You and your ex-partner might look into mediation or other dispute resolution methods, instead of experts, to help resolve disputes over dividing business interests.

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You can find a mediator:

In England or Wales on the Family Mediation Council website or on the National Family Mediation website

In Northern Ireland on the Family Mediation NI website

In Scotland on the Relationships Scotland website

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MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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