How family law deals with business asset division in divorce

Many couples jump into business together, either with both spouses actively involved or one spouse leading operations while the other holds a supporting ownership role. However, when a marriage dissolves, the business can become a point of contention during the divorce settlement.

If you’re in the early stages of a divorce and wondering how your assets will be divided, the family law specialists at Sousa Law can guide you through the process. Keep reading for an overview of the key factors involved in dividing business assets during a divorce, from valuation through to dispute resolutions.

How will my business be valued?

A business’s value is the cornerstone of a fair division, which is why a professional valuation is usually the first step in the process. This might involve assessing future profit projections, financial statements, and tax returns, among other records.

In some cases, you and your spouse can agree on a valuation yourselves (especially if it’s a small business). For more complex situations, it’s best to bring in a qualified professional like a forensic accountant who specialises in valuing businesses for divorce. They have the expertise to use various methods to determine a fair market value for the business.

Which factors will be taken into account?

Several things come into play when dividing business assets, besides the value of the business itself. These include:

  • Ownership of the business. If one spouse owned the business before marriage, it might not be considered a marital asset subject to division. However, if the non-owning spouse had a big hand in the growth of the business during the marriage, they may still be entitled to a share of its increased value.
  • Financial and non-financial contributions made by the non-owning spouse. This can include financial investments, management or operational work (even if informal), and contributions to the business’s reputation or growth.
  • The length of the marriage. In a long-term marriage, the non-owning spouse may be considered to have a greater stake in the business’s value due to their contributions over time.
  • The business’s ability to generate cash. If the business is illiquid, selling it or awarding a large payout to the non-owning spouse may not be feasible, and alternative solutions may be necessary.
  • The essential needs of both spouses and any children. The division of assets, including the business, should consider these needs and ensure financial stability for everyone involved.

How are business assets divided in a divorce?

There’s no one-size-fits-all approach to dividing business assets, but here are some of the most common strategies:

  • The spouse keeping the business can purchase the other spouse’s share, essentially becoming the sole owner. This buyout can be financed through the business itself, the spouse’s personal assets, or a combination of both. However, this option may not be feasible if the business lacks sufficient liquid assets or the spouse keeping the business doesn’t have the financial resources for a full buyout.
  • The non-owning spouse may receive a larger share of other marital assets, like the family home, investment accounts, or retirement savings, to balance out the value of their interest in the business.
  • The business-owning spouse may be ordered to pay spousal support based on a percentage of the business’s income. This makes sure the non-owning spouse receives ongoing financial support that reflects the contributions they made to the marital estate, including the business’s success.
  • Dividing ownership shares might be a possibility in some limited circumstances, particularly for corporations with multiple shareholders. However, this can be complex and may not be ideal if it creates difficulties in managing the business going forward.

Are the courts my only option?

No. In fact, it’s often better for an agreement to be reached through negotiation or mediation outside of court, as this can be much more amicable and save on time and money.

Here are some of the best alternatives to consider:

  • Mediation: A neutral third-party mediator can facilitate a discussion between you and your spouse to arrive at a mutually agreeable solution regarding the business and other assets. This can be a cost-effective way to reach a fair settlement without the formality and potential hostility of a courtroom.
  • Collaborative Practice: This involves both spouses working with separate lawyers trained in collaborative practices. The lawyers guide you through the process, focusing on open communication, compromise, and finding solutions that work for both of you.
  • Resolution Together: Also known as “One Couple, One Lawyer”, this is an approach to divorce mediation where both spouses work with the same lawyer to negotiate the terms of their settlement. It’s typically much cheaper since you only need to hire one solicitor, and everything gets communicated directly, which can speed the process up considerably.
  • Pre-nuptial or Post-nuptial Agreement: If you have one of these agreements in place, it might outline how business assets would be handled in case of divorce. This can significantly simplify the division process.

Secure a fair deal with Sousa Law’s family lawyers

Going through a divorce can be overwhelming, especially when there’s a business involved. Sousa Law’s experienced family law solicitors can guide you through the complexities of dividing business assets and help you reach a settlement fair to you both.

Our resolution-accredited family lawyers are skilled in handling business assets within divorce settlements. We understand the emotional strain of divorce, and will provide clear guidance and emotional support to help you through it.

Whenever possible, we’ll strive to reach a mutually beneficial agreement outside of court. We can, however, represent you if court becomes necessary.

We’re here to support you throughout the entire process. Book an appointment online or call us on 02380 713060, and let’s discuss your situation today.

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