How does the court deal with a business in a financial dispute between a divorcing couple? There is often a niggling concern for the business owner that the court may force the sale of the business, which could have far-reaching consequences for them and their employees.
Whereas the non-business owning spouse may worry that the court won’t include the value of the business in the settlement, meaning they won’t receive their fair share of the matrimonial pot.
So, where does the court start? If a business is involved, the court has two main aims:
1. To establish the value of the interests of the parties in the business.
2. Determine how that value ought to be considered in the overall financial settlement.
ESTABLISHING THE VALUE
How or whether to obtain a valuation is not always straightforward. A valuation is unlikely to assist where, for example, the main value of the business is an income stream, where there is difference of opinion about the value, or if the value is theoretical. If there is any doubt about seeking a valuation, you should seek advice from an accountant, particularly if the non-business owning spouse is concerned that the accounts are not a true reflection of the business value.
If the court deems a valuation is appropriate, divorcing spouses will be expected to jointly instruct an expert to provide a valuation report.
CONSIDERING THE VALUE IN THE OVERALL FINANCIAL SETTLEMENT
The court will use the valuation as a guide. The value is not the same as ‘cash in the bank’, so the court will try to distribute the risk of liquid and illiquid assets between the parties.
In a financial settlement the sharing principle applies to most cases. This means the court will share (more or less equally) all matrimonial assets accumulated during the marriage and will try not to dip into non-matrimonial assets (e.g. those built up before or after the marriage, or inherited). When a business forms part of the asset pot it is common for the court to hear arguments as to whether it is a matrimonial or non-matrimonial asset.
The court will acknowledge that divorcing spouses are unlikely to want to have ties in the same business, so while it has the power to transfer shares it is unlikely to leave such ties between the parties. It is also unlikely that a court will order the sale of a business if it is the source of the family’s wealth and income.
This is a complex subject, so it is vital that divorcing spouses with business interests obtain specialist legal advice.