The Employment Rights Act is nearly here: What do employers need to know?
If you own a limited company, the prospect of a divorce can raise serious concerns about the how it will be valued or divided.
While it may feel separate to your marriage, a limited company is often included in the financial negotiations during divorce proceedings.
Business owners must understand how their limited company is treated in a divorce and the steps they must take in order to protect it.
How is a limited company valued during a divorce?
Divorce proceedings require both spouses to give full financial disclosure, which includes declaring any interests in a limited company.
Even if the company was set up before the marriage or registered solely in one spouse’s name, it may still be taken into account if it generated income that supported the family during the marriage.
During your divorce proceedings your limited company will be valued and this will assess the company’s earning potential rather than just its assets.
While there is no single fixed method for valuation, the Family Court often uses an income-based approach.
This approach estimates future profits and applies a risk-adjusted discount to reflect how sustainable that income is over time.
If the value of the business cannot be agreed, the court can appoint an independent or forensic accountant to produce an impartial valuation.
Is my spouse entitled to half of my business?
Divorce settlements are based on fairness and that means shares are not always equally divided.
The court will consider:
- How long the marriage lasted
- Each party’s financial and non-financial contributions
- The needs of any children
- Both parties’ earning capacity
- Both parties’ future financial needs
When a limited company is involved in divorce settlements the court is generally reluctant to order the sale or liquidation of a company.
A more common outcome includes the business owner retaining the company while the other spouse receives a greater share of assets, such as the family home or savings.
In some cases, a structured buy out or ongoing maintenance payments may be used instead of dividing the business itself.
Joint ownership after a divorce is also possible, but this is usually avoided due to the ongoing financial ties it creates.
How can I protect my business?
Planning ahead is one of the most effective ways to protect your limited company and this can begin with putting a pre-nuptial or post-nuptial agreement in place.
These agreements are an effective way to set out how business assets should be treated if a relationship breaks down.
While they are not automatically binding, courts will often uphold them if they are fair and clearly drafted.
Commercial legal documents, such as shareholder agreements, can also provide additional protection.
These can include safeguarding measures such as requiring consent before shares are transferred, setting out buy-back provisions if a shareholder divorces or giving other shareholders pre-emption rights.
In some cases, alternative ownership structures, such as holding shares within a trust, may also be used.
Distinguishing a clear separation between your personal and business finances is crucial to show that your company is separate from marital assets.
How can we support you during divorce proceedings?
When a limited company is involved in a divorce, early legal guidance is essential.
We can help you understand how your business is likely to be valued and support you during the negotiation process.
Planning ahead can help minimise disruption to your day-to-day operations and allow for protective measures to be put in place.
With the right support, you can help protect the future of your business and reach a fair agreement for both parties.
For further advice on how your limited company is effect by your divorce, please get in touch.
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