If your relationship has ended and you are still married but separated from your spouse, you need to be aware of the financial implications. You will be in a unique...
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When you’re going through a divorce, you’re likely to be feeling concerned about your finances. If you own a company, you may wonder how you can protect it, and whether or not your ex-partner is entitled to a share.
Reaching a financial settlement as part of a divorce is not always straightforward, neither emotionally nor practically. Regardless, working with an expert divorce solicitor can ensure as smooth an experience as possible. Doing so is particularly recommended where your assets are of higher value and more complicated, such as individual, or joint ownership of a limited company.
In this article, we will explore the topic of how limited companies are affected by divorce, as well as how you can protect a limited company, and related considerations and processes.
To discuss your legal needs today, contact our experts at Sharp Family Law.
Does a company count as a marital asset?
Yes, a company can count as a marital asset, and therefore, be included as part of divorce financial settlement proceedings. Consequently, a limited company is affected by divorce.
In some cases, it could be argued that if a business was acquired by one party prior to the marriage, it should therefore not be counted as a financial asset during divorce. However, where that company has generated a significant income for both partners, maintaining the families standard over life overall, it is very likely that the business will be deemed as a marital asset during the settlement proceedings.
What happens to a Ltd company in a divorce?
When you and your divorcing spouse are dividing your finances, you may well be able to reach a voluntary settlement, by negotiating between yourselves. There are various options for dividing a business during a divorce, including:
Agreeing spousal maintenance
If the company generates a sufficient income, yet does not have much capital value, the business owner could agree to pay spousal maintenance payments to their ex partner over time, for instance, on a monthly basis.
Offsetting method
Where one spouse owns the company and does not wish the company to be divided as a marital asset, offsetting is a viable option. Offsetting is where the business owner agrees to allow their former spouse a larger share of a high-value asset, for example, the family property, and based on this, the former spouse agrees that they will not receive a share of the company.
Selling the company
It is an option to sell the company and divide the funds, however, this outcome is rare, particularly where a business has provided significant income for the spouses. Where cases in end up in Court, judges are unlikely to rule that a business is sold, except in rare circumstances.
One spouse buys the other out
If both spouses have an interest in the business, one option is for one to buy the other person out of the company, becoming the sole owner.
How can I protect my Ltd company in divorce?
To protect your limited company during a divorce, one option is to draft a prenuptial or post nuptial agreement. These legal agreements can be used to establish what should happen to the company if the relationship later breaks down, for example, to declare that the business will not be included in divorce proceedings, or detail how it should be divided.
Though prenuptial and postnuptial agreements are binding between the spouses, the judge is not legally bound to follow the details of these agreements in Court. Whether or not a prenup or postnup eventually influences a financial settlement depends on various factors, and ultimately, whether the outcome would be fair for both spouses according to their current circumstances.
One of the best ways to protect your limited company during a divorce is to work with a specialist divorce solicitor. Our experts at Sharp Family Law can provide bespoke support to help you protect your company, by obtaining a detailed understanding of your business, your situation, and your needs. We can ensure that you are in the best position possible, moving forward.
Alternative dispute methods such as mediation or collaborative law can be particularly useful, to support a more amicable divorce and fair negotiations with your ex-partner. These methods allow you to communicate your position, and work towards a best-case scenario.
Can my partner take half my company in divorce?
Theoretically, your former partner could claim that they are entitled to half of your company, or a smaller share of it, even if you are the sole owner. Regardless, the Courts are unlikely to force a business owner to sell their company and divide the funds equally.
It is more likely that a Court will rule to offset the company value, meaning that the business owner retains their company entirely, and instead agrees to allow their ex-partner a larger share of another sizeable asset, for instance, a greater portion of the family property.
Giving up alternative marital assets is common where a business owner would prefer to retain their entire limited company, without dividing it. Alternatively, it may be that the business owner agrees to make ongoing maintenance payments to their ex-partner, and as a result, does not need to share any portion of their company.
What is the process for valuing a business during divorce proceedings?
Where a business is being treated as a marital asset, as part of divorce proceedings, you’ll need to get an accurate business valuation, before determining any kind of financial settlement. Unless your business is valued accurately, your partner could be eligible to make a financial claim against you at a future date.
The process usually involves hiring a business appraiser or forensic accountant who can assess the worth of the company. There are different methods which might be used, including, asset-based, income-based, or similar business analysis.
Our solicitors can provide advice regarding business valuation when approaching a divorce financial settlement, to ensure that your interests are protected.
Get in touch with our divorce financial settlement solicitors
If you would like advice on protecting limited company in a divorce, or general legal support throughout divorce financial settlement proceedings, please get in touch with our specialist solicitors at Sharp Family Law.
You can contact us in Bath, Bristol, or Braford on Avon, or fill in our online enquiry form and a member of our team will be in touch.