Dividing a business in a divorce might just be one of the most confusing and stressful aspects of the divorce process. So, to discover exactly how to tackle this, read on…
Going through a divorce is a stressful and emotional time, full of potential strife, lots of negotiations, and a fair amount of emotional baggage getting in the way. During your divorce, there will be plenty of things to think about, not least where each of you will live, who your children will live with, and how to divide your assets. The list goes on, but is truly exacerbated if the two parties own a limited company together…
Many happy couples, with similar interests, might just think that setting up a company together is the greatest idea since man walked the moon. But, if you decide to part ways, owning a joint business can make dividing your assets a little more complex.
Seeking advice from specialist solicitors, who are experienced in handling complex matters such as dividing a limited company in a divorce, are the place to start. But first, let’s see exactly how your divorce might affect your joint venture, and some tips on avoiding a dispute…
How a Divorce Might Affect Your Joint Business
During a divorce, the matrimonial assets of both you and your partner will be considered, valued and divided according to various factors. These factors include your financial obligations, arrangements for your children, and also your standard of living prior to your separation. This is to ensure that, when assets are divided, it is as fair as possible to both you and your partner going forward.
Any joint business ventures can be considered a matrimonial asset, particularly if the business has generated income that has provided a certain standard of living for you both throughout your marriage. So, generally, it is important for both of you to protect your business from divorce.
How are Businesses Valued and Divided During a Divorce?
The process of getting a valuation of a business during divorce will vary depending on the level of involvement both you and your ex-partner have in the business. For example, if you both own the business outright, or you both have a significant shareholding in the business, either of you can arrange a valuation. However, if only one of you owns the business, then that person must ask for the valuation.
The Valuation Of A Business Can Depend On:
. The Business Structure:
for example, whether it’s a limited company, sole trader, partnership, or anything else like that.
. The Business Assets:
for example, any stock or property that it owns.
. The Business Profits:
this includes profits that have been accumulated already, and which may be accumulated in the future.
. An Analysis Of Comparative Business Models:
this usually occurs if your business does not have sufficient cash flow or assets.
The process is complex, and will involve tax implications and other considerations, such as the transfer or sale of shares. Because of this, it is recommended that you speak to an independent financial advisor to organise negotiations for it.
6 Top Tips for Avoiding a Dispute and Dealing with it Properly
If you’re worried about what will happen to your business during a divorce, avoiding conflict, where possible, is key. So, here are six top tips for avoiding a dispute and dividing your business quickly and effectively…
1. The More you Agree, the Less it Will Cost
If you and your ex-partner can amicably come to an agreement regarding the division of business assets, then this can help you to avoid going to court, and the costs associated with that. Seeking the advice of a collaborative lawyer and financial advisor can help you to come to an agreement about your financial arrangements in a neutral environment. They will make sure that any outcome is fair for both you and your former partner, and will help you to negotiate any disputes so that neither of you are left open to future financial claims.
2. Explore Different Options for Dividing the Business
There are various ways in which you can ensure a fair outcome for both you and your ex-partner when dividing your business, such as:
. A buy out:
either of you can buy each other out of the business if you both have an interest in the company.
. Offsetting:
if you own assets that are of an equivalent or greater value than your business, then you can allow your ex-partner to have a greater share of those assets in exchange for you keeping the entirety of your business interests.
. Spousal maintenance:
you can agree to pay your ex-partner ongoing maintenance, provided your business produces sufficient income.
. Selling:
completely getting rid of the business may be the cleanest option for you to part ways and move on.
3. Consult Independent Financial Advisors or a ‘Single Joint Expert’
If your ex-partner is disputing the valuation of the business, this can put a spanner in the works. In this case, it is advisable that you each consult an independent financial advisor who will be able to give a true value of the business.
This can be expensive, so another alternative is to seek out a ‘single joint expert’ to value the business. This expert will be independent of both you and your former partner, so can provide an impartial valuation. This can help avoid further disputes, and is more cost effective; just make sure you get legal advice before appointing them.
4. Put Pre and Post-Nuptial Agreements in Place
By putting in place a pre-nuptial or post-nuptial agreement, you can set out how the business should be handled should your relationship ever break down. Within this agreement, you can go into details about how the assets should be divided. You can even completely exclude the business from any divorce settlement.
Although pre-nuptial and post-nuptial agreements are not technically legally binding, the courts will usually place a certain amount of weight on the agreement. This is provided it was drawn up correctly, and you both sought independent legal advice before signing. The agreement must also be fair for both you and your ex-partner.
5. Do Not Use Your Family Home to Secure Business Assets
Another way you can protect your business is by making sure you don’t use your family home to secure any business assets. This is because, during divorce proceedings, your partner may want to divide all assets, including the family home. This could be a major problem if your home is tied up with your business assets, so it’s best to avoid this.
6. Seek Out a Mediator or Dispute Resolution Specialist
If you’re struggling to come to an agreement with your ex-partner, a mediator or a dispute resolution specialist will be able to help you negotiate any disputes over dividing your business. This will be more cost-effective in the long run, as you’ll be less likely to go to court if you can agree on a financial settlement through a mediator. Using this method will also help to avoid any future unamicable behaviour, or financial claims from your ex-partner.
Dividing A Business During a Divorce Doesn’t Have To Be So Hard…
Divorce is stressful and, when you have a business together, a complex procedure. But, as you can see, there are things you can do to mitigate any risk to your business, and avoid disputes when you’re dividing your assets.
The most important thing you can do is to seek legal and financial advice as soon as possible, to ensure the best possible outcome. What’s more, planning ahead with a pre-nuptial or post-nuptial agreement can also reduce the chances of having to take your financial settlement to court, which can be costly and time-consuming. Working with a mediator can also reduce the risk of any future unwanted financial claims by your ex-partner.
Have you ever divided a business during a divorce? Or perhaps you had a particularly tricky divorce, and want to share your thoughts and experiences here? Whatever it may be, feel free to leave your comments down below; we’d love to hear them.
