Buying a home in a conservation area: What you need to know before you proceed
For anyone who owns a business, divorce introduces a set of legal and financial complications that go well beyond the usual questions of property and maintenance.
A business is rarely just a financial asset. It may be the result of years of work, the source of income for employees and, in many cases, the primary vehicle through which the family’s wealth has been generated.
Understanding how a business is treated in divorce proceedings is the first step towards protecting it.
How the courts approach business interests
In England and Wales, family courts have wide powers to redistribute assets on divorce.
A shareholding in a limited company is personal property and can be the subject of a court order under section 24 of the Matrimonial Causes Act 1973, regardless of whether the company was set up before or during the marriage.
The Supreme Court’s decision in Standish v Standish, handed down in 2025, is significant in this context. The court confirmed that the sharing principle applies only to matrimonial property.
A business that was established before the marriage is treated as non-matrimonial property, and its pre-marital value should not be subject to equal division.
However, growth in the value of the business during the marriage that is attributable to the active efforts of the owner is treated differently from passive market growth, and courts have developed a methodology for distinguishing between the two.
In practice, the valuation of a business is one of the most technically complex aspects of divorce proceedings.
Courts typically appoint a single joint expert, usually a forensic accountant, to arrive at a valuation.
The method used – earnings-based, asset-based or market-based – will depend on the nature of the business and can have a significant effect on the outcome.
Settlement structures and their implications
Once a value has been established, there are several ways in which the business interest can be addressed in a settlement.
The most common outcomes are:
- An offset arrangement, where one spouse retains the business and the other receives equivalent value through other assets such as the family home, pension or cash. This is often the preferred route where only one spouse has expertise in the business and a clean separation is achievable
- Deferred consideration, where the business-owning spouse pays a lump sum over time, often funded through dividends or a sale, with appropriate security in place
- Share transfers in cases where both parties wish to remain involved or where there are no other assets of sufficient value to offset the business interest
Each of these structures carries different tax consequences that need to be understood before any agreement is reached.
Capital Gains Tax, dividend tax and the impact on Business Asset Disposal Relief can all affect the net value of any arrangement.
Protecting the business before a problem arises
The most effective protection for a family business is put in place before difficulties arise.
A well-drafted shareholders’ agreement that includes provisions covering what happens in the event of a shareholder’s divorce, together with pre-emption rights that prevent shares from passing to an outsider without the consent of the other shareholders, provides a strong first line of defence.
A pre-nuptial or post-nuptial agreement can be used to ringfence a business entirely from financial claims in divorce proceedings.
While such agreements are not automatically binding in England and Wales, courts give them significant weight when they have been properly negotiated, both parties have received independent legal advice and the agreement was fair at the time of signing.
Where a spouse is employed by the business, careful thought should be given at the outset to ensuring that employment documentation reflects the true nature of the arrangement and that any termination of employment is properly addressed as part of any financial settlement.
If you are concerned about how divorce could affect your business, or if you want to put protective measures in place, our family team can advise you on the options available. Please get in touch for a confidential discussion.
Related posts
