Divorce can be a complicated process where dividing finances are concerned. This is especially true when one party owns a company. Understandably, business owners will be concerned about the implications of a divorce for their company. We have highlighted some of the most commonly raised issues and take a look at how you can protect your business if your marriage breaks down.
Does the Law Consider My Business to Be a Financial Asset?
In the majority of cases, the law considers a business to be a financial matrimonial asset. This asset can be anything from full ownership to shares or other associated aspects of a business.
The courts consider all the financial resources of both spouses during the divorce process. Therefore, if you own a business, it is likely to feature in financial proceedings and your spouse will may end up with a share of its value during the divorce proceedings.
However, there are plenty of matters that the court will take into consideration. Their aim is to make the final financial arrangement fair to both partners, so it is not necessary to worry unduly. What the court will look at are factors such as your ongoing needs, as well as your ex-partner’s needs and the needs of your children. Additionally, the court will take into account your financial obligations and the standard of living you all enjoyed before the divorce proceedings.
It is possible to argue that the court should not take a business into account if it you established it long before the marriage took place. However, if the income from the business provided a certain standard of living for the other partner for a reasonable length of time, then it is likely to be included in financial matters. Your former partner could claim that they are entitled to a share of your company after the divorce, even if they have no day-to-day involvement in it.
How Is a Company Divided During a Divorce?
The main consideration for the court is to ensure that the financial settlement is fair to both parties. They are quite reluctant to agree to a settlement that is damaging to a successful business, however. So the court will look at other ways of dividing up the overall financial resources.
If you don’t want your company involved, this may mean agreeing to increased spousal maintenance payments or allowing your former partner to keep a greater share of the assets.
Here are a few of the options:
This is where another financial asset offsets the value of the business. This might include the family home as well as other property or investments. An example of this may be offsetting a pension, whereby one party may get the pension after the divorce while the other will receive the business.
In cases where a company generates a reasonable income, a spouse could accept ongoing payments for a specific period instead of being bought out or accepting a stake in the business. This is money the business pays to a former spouse. It is not the same as child maintenance payments. These are separate. If one partner remarries or passes away, then spousal maintenance will come to an end.
Buying out your husband or wife from the business is also an option. This is where one partner agrees to pay a certain amount to the other partner with any existing funds they have or can raise.
Although selling a business in order to achieve a fair financial settlement is not a common route, it might be the only option in rare cases. In these situations, the business is sold and the profits are divided between the divorcing couple.
All of these options are all subject to tax implications and other conditions regarding the transfer or sale of shares. Therefore, it is important to seek professional financial advice before considering which is best for your situation.
How Can I Protect My Business in a Divorce?
Drawing up a pre-nuptial agreement before marrying or post-nuptial agreement afterward can provide an element of protection for your business. These arrangements establish an agreement about how the business should be handled if there is a breakdown in the marriage. However, it is important to note that these agreements are not legally binding. Instead, the courts will consider them if certain criteria have been fulfilled.
You should also consider whether or not you should make your husband a director. Having them as a director or an employee can be advantageous from a tax perspective. However, in a divorce this can indicate to the courts that they played a greater role in the company than they actually did. An alternative could be allocating shares to them.
Conclusion: Speak to a Professional If You’re Going Through a Divorce
Bringing a business into the equation in the face of a divorce can be worrying and complicated on occasions. To put your mind at rest and understand your position, it is worthwhile speaking to a qualified legal expert.