Business assets are a significant factor in a considerable portion of divorce and civil partnership dissolution cases, particularly when one spouse owns or co-owns a business.

This can significantly complicate the financial settlement process due to the challenges in valuing the business and determining a fair division without impacting its ongoing operations.

If you are a business owner or have business interests, there are a number of things you should consider before proceeding with your divorce.

ARC Costs are unable to provide any legal advice or assistance in relation to dividing assets in divorce; however, we can introduce you to our network of family law and divorce solicitors. Furthermore, we can assist with any legal costs matters following divorce or financial relief proceedings.

Outlined below are a number of frequently asked questions in relation to divorce and business assets. It is important to note that the guidance below is applicable in England and Wales, and the process may be slightly different in Scotland and Northern Ireland.

This information is not intended to be taken as legal advice. You should always consult with a family law solicitor if you require advice or assistance on divorce and business assets.

How are business assets treated in a divorce in England and Wales?

Business assets are considered part of the matrimonial assets and are subject to division between spouses upon divorce.

The court’s primary objective is to ensure a fair and equitable distribution, taking into account factors such as each party’s needs, the length of the marriage, and contributions made by each spouse.

Can my spouse claim a part of my business even if they haven’t been involved in it?

Yes, your spouse may be entitled to a share of your business assets, even if they have not directly been involved in the business.

The court considers the overall financial resources of both parties, and a business can represent a significant asset and source of income.

What factors do courts consider when dividing business assets?

The courts consider several factors, including the business valuation, each spouse’s role in the business, the liquidity of business assets, and the overall financial needs of each party. They also take into account how integral the business is to the family’s financial security.

How is the value of a business determined in a divorce?

The value of a business is typically determined by an independent valuation conducted by a professional business valuer or forensic accountant. This will typically be a single joint expert. This process involves examining the business’s financial statements, assets, liabilities, and future earnings potential.

Can I protect my business assets before getting married?

Yes, one way to protect your business assets is through a prenuptial agreement, where both parties agree on how assets, including business assets, would be divided in the event of a divorce.

While not legally binding in England and Wales, courts are increasingly taking prenuptial agreements into account, provided they are fair and both parties entered into the agreement freely and with full disclosure.

What happens to the business operations during the divorce process?

Ideally, business operations should continue as usual during the divorce process. However, the division of assets and the potential need to liquidate or transfer shares can impact the business. Parties are encouraged to work collaboratively to minimise disruption.

Is it possible to exclude the business from the divorce settlement?

Excluding a business entirely from the divorce settlement is challenging, as the courts will ultimately aim to achieve a fair distribution of all matrimonial assets.

However, alternatives such as offsetting the value of the business with other assets, or one spouse buying out the other’s share, may be considered to retain business continuity.

What if I started my business before the marriage?

If the business was started before the marriage, it might still be considered in the asset division if its value increased during the marriage or both parties contributed to its growth.

However, the pre-marriage value of the business may be treated differently than the value accrued during the marriage.

How can I ensure a fair division of business assets in a divorce?

It is crucial to obtain an accurate valuation of the business and to consider all legal options. Engaging with legal and financial professionals who deal with business assets and divorce can help to ensure parties receive a fair settlement.

What are the tax implications of dividing business assets in a divorce?

Dividing business assets can have significant tax implications, including capital gains tax and stamp duty. It’s important to seek advice from a tax advisor to understand the potential tax consequences of any proposed asset division.

Is a limited company protected more than a sole trader business?

In the context of divorce proceedings in England and Wales, the distinction between owning a business as a limited company and operating as a sole trader can indeed affect how business assets are treated and potentially protected.

A limited company is a separate legal entity from its owners (shareholders) and the individuals who run it (directors). This separation means the company’s assets and liabilities are distinct from the personal finances of its owners.

Because of this legal separation, the assets of a limited company are generally more protected than those of a sole trader in a divorce.

The shares owned by a spouse in a limited company are considered for the divorce settlement, rather than the company’s assets directly.

As a sole trader, there is no legal distinction between the business owner and the business itself. This means that all business assets and liabilities are considered personal assets and liabilities of the owner.

In a divorce, the assets of a sole trader are more directly accessible for division as they are considered personal assets. This can make it more challenging to protect business operations and assets from being divided or sold off as part of the divorce settlement.

Divorce and business assets: The process of dividing assets

Splitting business assets during a divorce in England and Wales involves several steps, and the process can be complex due to the need to balance fairness, business continuity, and the interests of both parties. Here’s an overview of the general process:

• Full Financial Disclosure: Both parties are required to provide a full and frank disclosure of their financial situations, including all business interests and assets. This step is critical to ensure that the division is based on accurate information.
• Independent Valuation: The business needs to be valued to determine its worth as part of the matrimonial assets. This typically involves hiring an independent business valuer or forensic accountant. They will assess various factors, including the business’s assets, liabilities, income, and potential for future earnings.
• Matrimonial vs. Non-Matrimonial Assets: The court will consider whether the business assets are matrimonial (acquired or developed during the marriage) or non-matrimonial (acquired before the marriage or outside the marital partnership). This distinction can affect how assets are divided.
• Needs and Contributions: The court will consider the needs of each party, including their financial needs, housing needs, and any children’s needs. The contributions of each party to the marriage, including non-financial contributions and the development of the business, are also considered. 

Division Options

The court has several options for dealing with business assets in a divorce:

• Transfer of Shares: Shares in the business may be transferred from one spouse to the other to achieve a fair settlement.
• Sale of the Business: In some cases, the business may need to be sold, and the proceeds divided between the parties.
• Offsetting: One party may retain the business while the other receives other assets of equivalent value.
• Payment Plan: One spouse could pay the other a lump sum or series of payments to buy out their interest in the business.

Divorce and business assets: Court Orders

The court can issue various orders, such as lump-sum orders, property adjustment orders, or orders for sale, to implement the agreed-upon division of assets.

Once the court has made its decision or the parties have reached an agreement, steps must be taken to transfer assets, sell the business if necessary, or implement any other agreed-upon arrangements.

How can ARC Costs assist?

If you require legal advice or assistance with divorce and business assets, ARC Costs maintain a panel of family law solicitors. We can also assist in the recovery and negotiation of legal costs following divorce proceedings.

Our team of highly skilled Law Costs Draftsmen and Costs Lawyers can also assist legal representatives in recovering their legal aid fees, or in securing inter-partes costs after any such order has been made. Our team regularly assists in all types of costs claims, including divorce legal costs disputes. Our client base ranging from law firms to Litigants in Person, both privately funded and funded by the Legal Aid Agency. In inter-partes disputes, we can assist both paying parties and receiving parties.

If a divorce Costs Order had been made in your favour, we can assist you in recovering the costs owed to you. Equally, if a Costs Order has been made against you, we can assist in disputing legal costs and minimising your costs liability.

We can further assist in recovering costs from the Legal Aid Agency in privately funded cases. Using our expert costing service, we help clients maximise their recovered legal costs whilst providing expert legal advice and minimising the risk of rejected claims from the Legal Aid Agency, to ensure you maintain your KPIs.

We regularly use the CCMS system to submit legal aid costs claims and deal with all the administration on behalf of our clients and to free up the time of fee earners, thereby ensuring you can recover your maximum legal aid fees in an expeditious and efficient manner.

To find out more about how we can provide you with assistance, please contact us at 01204 397302 or email our team of experts at info@arccosts.co.uk. Alternatively, please use our free chat facility to speak to an expert directly.

We may receive payments from third party solicitors on our panel to whom we may refer your claim. We will never charge you for any referrals made to our panel of third parties.