Businesses and divorce - why business can sometimes become personal

What will happen to my business during a divorce?

Whilst business interests can become embroiled in divorce proceedings, they are not treated as the same as other matrimonial assets. That’s to say the axe falling straight down the middle of business assets and awarded to your partner is very rare.

The process often involves both sides pouring over what the business actually owns and its revenue making ability. This assessment is often made with the support of financial professionals. Past financial performance is also securitised closely during this process.

This information is then used to assist financial negotiations. It is also important to note that when armed with this information the overall aim will not be to serve a financial blow to the point where the business is forced to cease trading.

On the other side of coin will be the spouse who may have concerns over how the businesses assets are being handled on the build up to a divorce. Perhaps for example, you are worried that the assets will be sold off quickly.

It is not uncommon for business assets to be sold, shifted around, and other various practices to be used in order to try and distort the businesses overall financial position. Your divorce solicitors however should be well versed in such practices and be able to identify any suspicious circumstances.

Whether you are the business owner, or the spouse, it is important to act quickly. Obtaining advice now may allow us to act in order to stop your partner taking certain actions which may jeopardise the fairness of your settlement. Speed is therefore the name of the game when it comes to business interests within divorce proceedings.

There are three steps a divorce solicitor will normally take when advising over business matters they are:

Detection and valuation

Some company formations are relatively simple structures, such as a sole trader, like a plumbing business. Other business formations can however present a labyrinth of companies, some open, some dormant and some planed for imminent collapse. So to get to the bottom of what one partner owns, a detection and valuation exercise may be needed.

This means a fine toothcomb needs to be placed over the finances in order to ask any questions that have arisen. This process should start as early as possible.

Often outside help is needed, particularly in the more complex cases. Therefore accountants, auditors and valuation experts are often drafted in for advice.

The businesses size

Contrary to popular belief no court has a view to dismantle a business to the point it is forced to close the doors and such orders are very rare. The courts will want to award what they believe to be fair settlement, whilst also not causing severe financial shock to the business.

Therefore the courts and legal team involved will need to establish the scale of the businesses activity. For example, determining whether the formation is simply a sole trader business allowing a partner to form a regular income, or whether it is a company that has to be carefully and independently valued?

Extraction

Divorce solicitors will be able to advise on a range of methods on how to extract revenue or assets from a business in order to facilitate a fair divorce settlement.

It is also common for a business owner to seek a resolution that means the business can be left unaffected by divorce proceedings. This can sometimes mean offsetting one asset so that the business can be left outside of negotiations.

Therefore, a business owner may wish to sacrifice a larger percentage of the family home in order to keep the business off the negotiating table.

My partner has stated they will file for bankruptcy during divorce proceedings, will this affect matters?

If a business files for bankruptcy this can mean matters become a lot more complicated. This is because the business owner will no longer be in procession of the company's assets. A trustee will be appointed who will then technically own the assets.

It is important that if your partner is saying they will file for bankruptcy, you act quickly. You should solicit advice from one of our divorce solicitors as soon as possible, who will offer advice, specifically tailored to your needs.

Bankruptcy can sometimes mean the court’s hands are tied. This means that they will find it difficult to arrive at a decision over assets when bankruptcy has been declared, and the process may incur substantial set backs.

There are legal methods that can be enacted, however you will need to see us as soon as possible.