Divorce often brings upheaval, but if you own a business, that upheaval can cut even deeper. A company might be your livelihood, your legacy, or both. So, when it becomes part of a financial settlement, it’s natural to worry about what happens next.
At Buckles, we’ve worked with many clients in this position – people trying to untangle their personal and professional lives in a way that protects what matters. This article breaks down how business assets are treated in UK divorce cases, the pitfalls to watch out for, and the steps you can take to protect your business.
Are business assets always split?
Not always – but they’re usually discussed as part of the financial settlement. The law in England and Wales states that both parties must share full details of all their assets during these discussions, and that includes business interests.
A business started or built up during the marriage will usually be seen as a matrimonial asset. If it was set up beforehand or kept separate, this may change.
Every divorce is different, and that’s why individual legal advice is crucial early on.
What’s it worth?
The value of a business may be impacted by various factors including future maintainable earnings, reputation and good will, assets, debts, market conditions and more.
The 2023 case of DR v UG is a great example of how volatile valuations can be. Here, shares valuation fluctuated from £57 million to over £250 million during the course of proceedings.
At First Directions Appointment (FDA), and in the absence of agreement between parties as to valuation and liquidity, the Courts will usually direct that a single joint expert be appointed to prepare an independent valuation focusing on not only valuation but also issues including liquidity and capital and income extraction and tax consequences.
There are a few main methods they could take;
- Asset-based valuations (think factories or farms)
- Income-based methods (for service businesses)
- Market comparisons (if recent sales exist)
How do Courts decide what happens?
Courts will look for fairness, while trying not to harm a working business and will often seek solutions that will preserve continuity whilst also achieving financial equity.
There are a few ways of doing this:
- Offsetting: One spouse keeps the business, the other takes more of something else, such as the family home, savings, or a greater share of the pension
- Buyouts: One party pays the other for their share either as a lump sum or staggered payments
- Income sharing: Rather than divide ownership, future profits are shared
- Sale: This is very rare and will normally only happen when no other option works
The right option depends on the business, the relationship, and overall assets.
Can I protect my business?
There are a few smart steps that can help protect your business interests from being caught up in divorce negotiations.
The first is a ‘nuptial agreement’, be that either a prenup or postnup. The courts are becoming increasingly likely to uphold these agreements, provided they’re fair and properly prepared (e.g. that both parties have a clear understanding of what they are signing, and that they entered into the agreement of their own free will).
For businesses with multiple shareholders, always be mindful of internal governance. Shareholders’ agreements, partnership deeds, or company articles can include clauses to prevent the transfer of shares in the event of a divorce (which is particularly useful with family-run businesses). These may safeguard the stability of the wider business and its other stakeholders.
What if you both work in the business?
Some couples can continue to work together with the help of a detailed Service Agreement to make sure roles and responsibilities are clear. More often, one person steps away, hopefully via a respectful and agreed process. If there are other investors or family members involved, this requires sensitivity.
Don’t forget about tax
Selling or transferring shares can trigger Capital Gains Tax (CGT) and other tax penalties. There are reliefs available, but only within certain timeframes – for example, some tax reliefs may only apply if transfers happen within the tax year of separation, and any delays can carry costly consequences.
Sometimes one party may attempt to shield business assets from a financial settlement, but the courts are savvy to this tactic and will step in to take a closer look at the corporate structure if they feel there is a possibility they’re being used to disguise ownership (as was the case in Prest v Petrodel [2013]). Clarity and honesty is crucial here.
Moving forward
Reaching a fair settlement where a business is involved often means balancing two competing priorities, both preserving the viability of the business while ensuring a fair division of assets. This isn’t always easy, but at Buckles, we help clients protect their commercial interests while working toward a fair outcome.
If you’re dealing with divorce and there’s a business in the mix, don’t wait. Get in touch with our family law team. We’re here to help you navigate the road ahead with confidence.
