Divorce can be challenging enough without worrying about your business. Many business owners worry that their spouse is going to claim their hard-earned business profits after a separation.
The divorce rate in the United Kingdom is estimated at 42 percent, with unreasonable behaviour as the number one reason. If you are going through a divorce as a business owner, this article aims to help you to navigate the process and keep your business safe.
If I Am Getting Divorced, Can My Separated Spouse Claim Profits From My Business?
Yes, but it depends on the situation. Divorce proceedings can be complex, and the division of assets, including business interests, can vary depending on various factors.
In the UK, the law recognizes that a business may be considered a matrimonial asset subject to division between spouses. However, the specific circumstances and legal principles involved will determine whether your separated spouse can claim profits from your successful startup.
How Are Business Assets Treated in Divorce Cases?
Business assets are generally treated as part of the matrimonial assets to be divided between spouses during divorce proceedings. The court considers the value of the business, its future prospects, and the contributions made by both spouses during the marriage.
What Factors Are Considered When Determining the Division of Business Assets?
According to DivorceBob.com, the court takes into account several factors when deciding how to divide business assets, including:
- Whether the business was established before or during the marriage, and the extent of its growth and success.
- The direct and indirect contributions of both spouses to the business. This includes financial investments, active involvement, skills, efforts, and sacrifices made by each spouse.
- The financial needs, responsibilities, and obligations of both spouses, including any dependent children, in order to reach a fair settlement.
- The overall financial situation of each spouse, including other assets and income sources, is taken into account when considering the division of business assets.
- The future potential and profitability of the business when making its decision, particularly if it could impact the financial stability and well-being of either spouse.
What Can I Do To Protect My Business in Case of Divorce?
While it is not possible to completely safeguard your business from being claimed, there are steps you can take from the very first days of a relationship, including having a legally binding agreement in place before or during your marriage that outlines the treatment of business assets in case of divorce.
Keep clear records of your business’s financial transactions, investments, and growth, demonstrating its separate identity from personal assets. You could even get an independent professional valuation of your business to establish its worth objectively.
If appropriate, you may consider transferring a portion of the business ownership to other parties, such as trusted partners or family members, to dilute the potential claim. With matters like this, you should consult an experienced family law solicitor.
Can My Ex-spouse Claim Half of My Limited Company?
Sometimes, yes, but it depends on the situation. In the case of family businesses where both spouses are directors and have equal ownership of shares, the situation can be more complex. If the couple separated amicably, they may choose to continue as business partners.
Another option is for one spouse to retain their shares but take on a less active role in the business, allowing the ex-partner to manage it. You could also arrange for one spouse to sell their shares to a new director or for the ex-partner to buy them out.
If no mutually agreeable solution can be reached, the divorcing parties may need to sell the business or seek a court decision. A solicitor should prepare a legally binding consent order. This document outlines how the business assets will be divided as part of the overall divorce settlement.
How Is the Value of a Business Determined in a Divorce?
Before reaching a divorce settlement, you need to obtain a valuation of the business. The valuation helps determine the amount to be added to the overall marital assets.
The business owner must provide an estimate of the business’s value, supported by company accounts and a letter from an accountant.
The valuation takes various factors into account, including:
- Total business assets, including cash reserves, property, and stock
- Historical turnover and profits
- Expected profits based on new contracts or future prospects
- Business debts
If the valuation estimate is disputed by the other spouse, the divorcing couple may need to seek an independent accountant with expertise in business valuations.