How to value a business in a divorce?

Agreeing a divorce settlement means deciding how much each spouse is entitled to, and how to divide the total estate into the appropriate proportions.

For example, one partner may prefer to stay in the family home, while the other moves out to live elsewhere. In return, the second partner receives a greater share of the other assets and finances to ‘buy out’ their half of the property.

Where marital assets are co-owned and co-funded this can be relatively straightforward, although the final settlement may need careful negotiation. However, where business assets are involved, the waters may be a little more murky.

Can I claim my partner’s business assets in divorce?

Business assets may form part of a divorce settlement, but in most cases the courts will seek to avoid selling off the business or any shareholdings, in order to make a payment to a spouse.

Instead, as described in the case of the marital home above, it may be that business holdings form part of one spouse’s settlement, whereas the other party receives an equivalent sum from the other marital assets.

Examples of how this may be achieved include:

  • A greater equity share in the marital home
  • A greater share of financial savings including ISAs
  • A greater claim to the spouse’s private pensions

Business ownership is not a fixed-value proposition. The business may be a means to generate an ongoing income for the family – as such, it may not be in anyone’s best interests to divest those holdings to generate a one-off lump sum for a divorce settlement.

How to value a business during divorce

A business should be valued both in terms of the revenue that would be generated by selling it – this applies to businesses owned outright and to minority shareholdings – and also the income that is produced via dividends, salaries and other earnings.

The business’s debts should also be taken into account, especially if the spouse has a personal liability for those, or if selling the spouse’s shareholdings would have a detrimental impact to the company’s credit rating.

It’s best to value a business upfront in divorce negotiations, so that all parties are clear about its size and significance in the wider context of the marital estate.

Finally, take a long-term approach to valuations. If the company has had an unusually bad year, this should not be considered the sole valuation of the business, when a long-term average would be significantly higher.

How to include a business in divorce settlements

Once the value of the business has been agreed, it may be factored into the different elements of the divorce financial settlement agreement:

  • Capital payments to ‘buy out’ the other spouse’s entitlement to shareholdings.
  • Maintenance payments that reflect any ongoing generated income or dividends.

It’s important not to double-count the business, for example by claiming for the partner’s share in the business as an asset, and also claiming an entitlement to the income generated from the business.

Where the income is dependent on the asset, rather than generated independently, it should only be included once in the settlement, to avoid adversely affecting the spouse.

Why consult a divorce lawyer?

Divorce solicitors are skilled and experienced in valuing businesses, calculating a fair division of that value and including it in a legally binding divorce settlement that treats both parties fairly.

An expert divorce lawyer can help in complicated cases, for example where the spouse is a sole trader, and the value of their ‘business’ is intrinsically linked with the person running it.

By consulting divorce lawyers, you can avoid entering into an ambiguous agreement and make sure that any settlement is not only legally binding but is not open to any interpretation that could allow one spouse to avoid paying a fair amount of maintenance to the other in the future.

What to do with a shared business?

A specific complication arises if both spouses are equal partners in the business and are both critical to the day-to-day running of operations. In this instance, you must decide whether you will both remain with the business in the future.

If your separation is amicable, you might find there is no problem with both keeping your role in the business. If your divorce has become acrimonious, there may be no sensible way to proceed other than for one partner to buy out the other.

A good family lawyer can help you to decide which option is best for your circumstances, as well as making the arrangements for the legal transfer of ownership.

Division of business assets during divorce

We work with divorcing couples across the UK to decide on the appropriate division of assets. With advice from a qualified divorce lawyereffective ways to protect business interests in divorce settlements can be negotiated.

Good legal advice should be the first port of call during any separation involving a business. By putting in a call to an experienced divorce lawyerentrepreneurs can gain a crucial third-party professional opinion, to ensure business assets are valued correctly and handled appropriately in divorce negotiations.

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