Janine Hutson, a solicitor in Harrison Drury’s divorce and family law team, shares five key considerations when dealing with a family business as part of a divorce settlement.
Going through a divorce and dividing your property and assets can be difficult and stressful. The situation is often made more complicated if there is a family business involved. If you are separating and you have a business, here are five issues you should consider:
How much is the business worth?
The first issue for consideration is the value of the business. One spouse, or both, will have an interest in the business, thus it is an asset that may need a valuation. The separating spouses may agree what their shares in the business are worth, but often there will be a dispute. The method by which the business is valued will depend on the type of business. An independent forensic accountant will often be instructed in these cases to provide a report on the value of the business.
Dealing with the business asset within the settlement
Once the value of the business is established, the next consideration would be how to deal with this asset within the settlement. There are various options. If there are other assets of the marriage, these could be used to ‘offset’ the value of the business. For instance, one spouse could keep their home or pension and the other spouse could retain the business.
Whether this would be fair and reasonable would depend on the value of the business and the value of other assets held by the couple. The spouse retaining the business may be required to raise funds to ‘buy out’ the other spouse’s interest in the business. Whether this is possible or not will be considered by the court.
Keeping the business running
The family court will usually try to avoid the need for a family business to be sold because it will inevitably have an impact on at least one spouse’s ability to earn an income.
If both parties have previously been heavily involved in the running of the business, consideration could be given to whether it will be possible to continue with that arrangement. This may be possible in some cases, but certainly not all. Although the family court will try to avoid the need for the business to be sold this cannot be guaranteed and there are circumstances in which the family court will make an order that the business must be sold.
Managing income generated by the business
The income generated by the business will be an important factor in the settlement. If one spouse retains the business this may be agreed on the basis that they will pay the other spouse maintenance.
The amount to be paid and the duration of these payments will depend on the couple’s specific circumstances.
What is each spouse’s contribution to the business?
One final consideration may be each spouse’s contribution to the business, either by way of their capital investment or their role within the business.
In cases of a longer marriage the contribution made by each spouse will be less relevant to the eventual division of assets. But in shorter marriages one party may be able to successfully argue that their contribution to the business means that they should retain their interest in it, either without claim from their spouse or with a reduced claim from their spouse.
Divorce settlements involving a family business are potentially complex and it is important to seek specialist legal advice in relation to these issues. To speak to a member of Harrison Drury’s contact Janine on 01772 258321.