How to protect yourself and your business during divorce

Divorce is never easy, but it can be more complicated when you’re a business owner.

At McAlister Family Law, which is part of the Beyond Law Group, we are experts in dealing with divorces which involve businesses.

Here is my advice intended to help you protect yourself and your business.

Don’t panic! The divorce process is not designed to damage a business so that it is no longer viable.
The income produced by the business will often be the business owner’s main source of income both before and after divorce.
This income may also need to fund child maintenance payments and sometimes spousal maintenance payments after a divorce: damaging the business would be counterproductive.
Your business, along with your and your spouse’s other assets, will be considered a relevant asset within the divorce proceedings.
You’ll need to provide information relating to the business, even if you are not the sole owner.
If there are other business owners, you should inform them of your divorce.
Your business will likely be valued by an independent accountant, instructed jointly by you and your spouse, within the divorce.
They will look at the value of your shares, how much money, if any, you can raise through the business to assist with the divorce settlement and the sustainable income that can be taken from the company going forward.
It is the net value of your shareholding that will be taken into account, after notional costs of sale and tax have been deducted.
Whilst you may not be selling your shareholding, your shares will be valued on the basis that you are selling them.
Valuing a business is an art not a science, so different accountants have different approaches, which results in some accountants providing more optimistic valuations than others.
It is therefore important to take advice on which accountants would be most suitable for your situation.
If your spouse also has shares in the company, it is unlikely that you will both remain shareholders in the company after your divorce.
Some divorcing couples agree to continue running their business together and to both remain shareholders after they divorce but, in most divorces, one spouse transfers their shares to the other as part of the divorce settlement.
The date of separation may be relevant if one spouse is to transfer their shares in the company to the other, and if this takes place in the tax year of separation, the Capital Gains Tax liability arising on the transfer is paid by the spouse who receives the shares as and when they sell the shares in the future.
If the shares are transferred from one spouse to another after the tax year of separation, the spouse who is transferring the shares will have to pay any Capital Gains Tax liability that arises on the transfer shortly after the transfer.
Do not be tempted to transfer your shares in the company to a third party in an attempt to reduce your spouse’s claims on divorce.
Any disposals of assets that are at an undervalue can be set aside by a divorce judge, and if the disposal took place within the three years prior to the divorce the onus is on the spouse who “got rid” of the asset to prove that it was not at an undervalue.
Just because you have a business does not mean that your divorce settlement will end up being argued about in court.
Once you have an appropriate valuation report a financial agreement can then be negotiated, without the need for a judge’s input.
Make sure you obtain legal advice from an expert family solicitor who regularly deals with divorce cases where there are businesses.

To read this feature in full and access further Lancashire business news, advice and analysis subscribe to Lancashire Business View magazine or join the LBV Hub from just £2.50 per month. Click here to subscribe now.