During a divorce, the fate of business assets are not shielded from the scrutiny and equitable division synonymous with divorce settlements.
We take a look at considerations and legal statutes shaping the treatment of businesses amidst marital dissolutions, dispelling common misconceptions along the way.
(Read Time: Approx. 3 minutes)
Topics Discussed:
- Exploring the process of dividing business interests in a divorce.
- Understanding the legal framework governing the distribution of business assets.
The Legal Backdrop
The Matrimonial Causes Act 1973 grants family courts wide discretion to reallocate assets between spouses, aiming for an equitable distribution based on the couple’s capital and income.
Unlike what many might think, business assets are considered part of the matrimonial pot, much like the family home or pensions.
This means they can be subject to division to ensure both parties walk away with a fair share.
The Surprising Reality of Business Assets in Divorce
For many, the realisation that a family business isn’t protected against division in divorce proceedings comes as a surprise.
Whether it’s a business built from the ground up during the marriage or one partner’s pre-marital venture that grew into a joint endeavour, the court often views it as a shared asset.
This could mean a redistribution of shares, a buy-out, or, in some cases, selling the business to divide the proceeds.
The Imperative for Complete Financial Transparency
A cornerstone of reaching a fair settlement is the full and frank disclosure of financial information.
This includes detailed accounts of the business for at least the last two financial years and any documentation supporting the current valuation of the business interest.
Failure to provide this information can lead to complications and even accusations of hiding assets.
Valuing the Business
Valuing a business is fraught with complexities and subjective judgments.
If the spouses cannot agree on the value, the court may commission an independent expert to conduct a valuation.
This process examines not just the numbers but the liquidity, sustainable income, and other financial nuances of the business.
The objective is to arrive at a fair valuation that accurately reflects the business’s worth without undermining its operational integrity.
Court Proceedings
The courts prefer not to dismantle a functioning business since it could mean the loss of income and jobs.
More often, the solution involves one partner retaining the business, compensating the other through other assets or payments.
However, achieving this balance is tricky, as it involves setting a valuation that fairly represents the business’s worth without placing an undue burden on the retaining party.
Proactive Measures for Peace of Mind
Given the potential complexities, taking steps to protect business interests before they become a point of contention is wise.
Pre-nuptial and post-nuptial agreements can explicitly outline the treatment of business assets in case of divorce.
Additionally, strategic planning with legal and financial advisors can help ensure that business structures and agreements are in place to mitigate adverse outcomes from a divorce.
Forewarning and Summary
Understanding how business assets are treated in divorce is crucial for anyone who owns a business and has a spouse.
Secure your financial future during this crucial time with the top-tier expertise of our seasoned legal and financial advisers.
Don’t leave your future to chance—choose the best defence. Visit www.solicitordivorce.co.uk now and take the first step towards a protected and prosperous tomorrow.
If you’re looking for a professionally created, risk-free will, contact Saara at Solicitor Divorce today.
Contact us using the form here to know more. Alternatively, call us on 01772 282768