Businesses

Is my business included in the divorce settlement?

Usually, yes. The court considers all assets owned by either spouse, including shares in a private company, a partnership interest or a sole trader business. A business is relevant in two ways: as a capital asset with a value that may be shared, and as a source of income that may fund maintenance. The court will take care not to count the same value twice, for example by both dividing the capital and relying on the income it produces.

What if I owned the business before the marriage?

A business founded before the marriage may be treated, at least in part, as non-matrimonial property, which is not automatically shared. The court will usually consider what the business was worth at the start of the marriage, and how much of its later growth resulted from work done during the marriage. However, the position is rarely clear cut. Where the family's needs cannot otherwise be met, or the business has become intertwined with family finances over a long marriage, the court may draw on it.

How is a business valued in a divorce?

In most cases, a forensic accountant is instructed jointly by both parties as a single joint expert to value the business. The accountant will review the accounts, profitability, assets and future prospects, and will consider whether the business could realistically be sold. The courts have repeatedly said that valuations of shares in private companies are among the most fragile valuations that can be obtained, because there is no real market to test them. It is ultimately for the judge, not the expert, to decide what value to place on the business.

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How is a business divided?

The court's aim is a fair outcome that, wherever possible, leaves a viable business intact. As the Court of Appeal explained in Martin v Martin [2018], the court broadly has three options:

• Fix a value. The owning spouse keeps the business, and the other receives a larger share of other assets (an offset) or a lump sum, sometimes paid in instalments.
• Order a sale. The business, or the spouse's shares in it, are sold and the proceeds divided. This is relatively rare.
• Divide the shares. Both spouses keep a shareholding after the divorce, known as "Wells sharing". This shares the risk fairly but keeps the parties financially linked, so it is used sparingly.

The court will also recognise that a share of a private business is not equivalent to the same sum in cash, because it carries more risk and may be difficult to realise.

What information will I need to disclose?

Both spouses must give full and frank financial disclosure, usually on Form E. For a business owner, this typically includes the last two years' accounts, details of the shareholding and any directors' loan account, and a statement of income drawn from the business. The other spouse, or the expert, may ask for further documents such as management accounts, tax returns or details of retained profits. Failing to disclose fully can lead the court to draw adverse conclusions.