The business of divorce: what happens when a family business is involved?

When separating couples also share a business interest, the financial and practical complexities can significantly increase. Whether one party owns a business, or both have worked together to build it, the business will often be considered an asset of the marriage and must be dealt with as part of the financial settlement.

In family law, it’s crucial to treat a business not only as an operational concern but as a financial asset that may need to be valued and potentially divided when a separation or divorce occurs.

Valuing the business

One of the first steps in this process is establishing the value of the business. This is typically done by jointly instructing a Single Joint Expert (SJE), a qualified forensic accountant agreed upon by both parties. The SJE will provide an impartial valuation, which may include consideration of:

• The overall value of the business
• Income that the business generates
• Any assets
• Liabilities and debts

This valuation is essential to ensure that both parties understand all facts when negotiating a financial settlement.

Determining the future of the business

Once a valuation has taken place, the next step is to assess what will happen to the business itself. This will depend on the structure of the business, how involved each party is in its operation, and whether it is viable for the business to continue post-separation. Key questions that may be asked include:

• Is the business capable of continuing with both parties involved?
• Would one party be willing (and able) to buy out the other’s interest?
• Are there third-party shareholders or stakeholders who need to be considered?
• Would it be more practical to sell the business and divide the proceeds?

If the separating couple are co-owners or directors, their ongoing working relationship should be realistically assessed. In many cases, continuing to run the business together after divorce is not feasible, and alternative arrangements may need to take place.

Legal considerations

Family lawyers will also look at how the business is structured, whether it’s a limited company, partnership, or sole trader, as this will affect how it can be divided or dealt with. Any governing documents such as, shareholders’ agreements, partnership agreements or articles of association will be reviewed to understand existing procedures for exit, ownership transfer, or dispute resolution.

Depending on the circumstances, options may include:

• One party retaining the business with a lump-sum payment or other assets offsetting the value
• Selling the business and dividing the proceeds
• Transferring shares or restructuring ownership
• Closure and liquidation (typically a last resort)

Due to the complexity of business-related issues in divorce, it is essential to engage the right professionals early in the process. In addition to your family lawyer, input from forensic accountants, tax advisers, and financial planners may be necessary to reach a fair resolution.

It is also important to consider the wider impact of decisions, such as how employees, suppliers, and clients will be informed and what ongoing obligations remain.

Dividing business interests during a divorce can be challenging, but with expert guidance and careful planning, it is possible to reach a resolution that protects the business, ensures fairness, and allows both parties to move forward.

If you are separating or divorcing and a business forms part of your joint or individual assets, contact us to discuss the most appropriate steps and how we can support you through the process.