In most cases, limited companies are usually not protected from being considered as part of the financial proceedings of a divorce, even in cases where a business was established before a marriage took place. They are typically viewed as a matrimonial asset, as a shareholdings and company assets. With 2023 data showing that around eighty percent of SMEs in the UK are family-owned, here are some insights on how decisions are made to guide you in protecting your business during a divorce.

 

Factors in decision making

When coming to a decision on the attribution of assets within a divorce settlement, legal representatives, or the courts if it goes that far, will consider a number of important factors. For example, they will want to know who owns and runs the business, the level of involvement of both parties within the company, whether it provides a source of income necessary to sustain both spouses and any dependents, whether any aspect of the business is secured against the marital property and the existence of any other matrimonial assets.

 

Prenuptial agreements

Prenuptial agreements can sometimes offer a level of protection for a limited company. A contract which defines how marital assets are to be treated in the event of a divorce, they are agreements entered into by couples prior to marriage. They are not legally binding in the UK, however, they do carry some weight and the court will enforce them as long as they are deemed to be fair and that both parties obtained independent legal advice before voluntarily entering into the prenuptial agreement.

 

Valuation

Before a company can be assessed as part of the divorce process, it needs to be accurately valued. Although this can be quite a complicated task, is often time-consuming and comes at a cost, it is a critical part of the process in order to reach a fair settlement. The best way to reduce costs is for the couple to employ the services of a single, independent expert valuer, rather than each paying their own. The value of the company will depend on an assessment of all of its assets, including cash in the bank, property, equipment, turnover, stock, profits and any liabilities

 

How will the company be affected by a divorce?

The court will want to ensure that a business is able to continue to operate and provide an income, particularly when there are children to support, therefore it will try to divide matrimonial assets in a way that will allow it to continue to function. This means that if one spouse is more involved in the day to day running of the business, it might allow them to retain the company but award the other party assets of a similar value, for example, property or savings. This is known as ‘off-setting’.

 

Other options available

  • One party buys the other one out 

If both spouses are involved in the daily running of the business, but the divorce is acrimonious, it may be worthwhile for one of them to buy the other one out, bringing about a clean break under the sole ownership of one spouse.

 

  • Spousal maintenance

This is when one of the divorcing spouses is awarded an income from the business, this can either be for a fixed amount of time or indefinitely.

 

  • Selling up 

It is fortunately very rare for courts to order the sale of a company and it only happens in extreme circumstances, when they can’t find any other way of dividing assets fairly and one or both parties can’t agree on the transfer of shareholdings.

 

In conclusion, there are a number of different options available if you want to protect your limited company from the financial impact of a divorce. The route you take will depend on your unique financial, family, personal circumstances and your ambitions for the future.