Guest post: Business owners and divorce
I’ve helped many business owners through the divorce process and although everyone’s circumstances are unique, it can be helpful for business owners to understand how their business will be considered during the divorce process.
There are many ways that businesses are factored in to the asset pot divided on divorce.
Sometimes, businesses have no real value over and above the income they generate. In that instance it would be unfair on the business owner to effectively count the business twice within the resources available to divide by factoring in the income produced by it as well as a capital value based on a multiple of its earnings. If the income is shared between the spouses long term post-divorce, the business will only be factored in as an income stream.
There would also be no capital value based on an umbrella company created by someone as a tax efficient vehicle for their income.
When representing a business owner where there clearly is a capital value to be placed on the business, a good family lawyer will engage at an early stage with the business’s accountant to try to produce a valuation. If this is accepted it will remove the need for an independent accountant to scrutinise the company’s financial documents and produce an independent valuation for the court. This process is costly and time-consuming if it is deemed necessary.
However, if the court does consider it necessary to incur the costs of an independent valuation, a single joint expert accountant is usually appointed. Detailed instructions need to be put together by both parties’ solicitors. Careful consideration is also needed as to the documents the expert accountant needs to review. They will be asked to confirm the open market value of the business interest net of tax, comment on the liquidity of that interest (i.e. how its value could be extracted to fund the divorce settlement) and confirm the sustainable future income of the business owner.
There may also be issues around how much of the value of the business interest should be shared if a spouse already owned the business before the relationship started. It can be argued that the pre-existing value of the business should be ring-fenced from the assets shared on divorce. This can succeed if there are sufficient matrimonial assets to meet needs.
It is always a good idea to take advice before separating. There is a lot to think about and it can be difficult to navigate those issues and ensure that everything is covered. A meeting with a solicitor can help provide clarity. The date you choose to separate can also be critical from a tax perspective, so it is important before separating to know if that might be an issue for you.
Sarah Atkinson is a partner in the family team at Stephens Scown. This growing team is among the largest in the region and has top tier ranking in Legal 500. Sarah Atkinson is recognised as a notable practitioner by Chambers UK. To contact Sarah, please call 01872 265100, email firstname.lastname@example.org or visit www.stephens-scown.co.uk