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How does divorce affect a business partnership?

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How does divorce affect a business partnership?

What happens to a business in a divorce and whether a limited company is protected from divorce is mitigated by many factors, including whether both spouses wish to continue their professional relationship, despite the divorce. Business interests will be divided and factored into the divorce settlement, including business assets in some cases.

The way divorce affects a business will often be determined by the financial, operating and management structure of the business.

Financial structure - The rights of both spouses over the business and business assets will vary based on shareholder status – i.e., if one is a majority shareholder or minority shareholder.

Operating structure – When formalising the partnership, such as incorporating a limited company, both partners may have signed strict terms that set out the obligations and rights of a departing company director in the event of divorce to protect the business and business assets.

The business interests of both parties may also vary based on whether it’s a limited company, partnership, or sole trader business.

Management structure - Another common scenario is, if it’s a family business, the divorce may likely disrupt company operations if the spouse played an instrumental role in the daily running of the business.

We answer how divorce affects business assets and under what circumstances your spouse may be entitled to them.

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Can a divorce settlement include business assets?

When business partners get a divorce, shared business interests will be divided as part of the divorce settlement agreement. The settlement may include business assets if both partners choose any of the following options:

  • Sell the business and business assets
  • Buy out a partner, this may include using business assets as payment
  • Close the business and distribute business assets between partners
  • Alternatively, one person may continue to operate the business and the business assets will

remain with the business and other assets may be used to pay the spouse to offset the value

A commonly asked question with respect to divorce includes - Is my spouse entitled to half of my business assets? This will depend on the share structure as shares represent ownership, which begs the question of how many shares do they hold in the business? Are they a majority shareholder?

To calculate how much company shares are worth, arrange a business valuation.

How much is my business worth in a divorce?

When negotiating a divorce settlement, the future of your business will likely be your main concern.

To conduct the process smoothly with no disputes along the way, arrange a business valuation. A professional business valuer or a reputable business transfer agent, also known as a business broker, can calculate how much your business is worth. To calculate the value of a portion of the business, a full valuation of the business will often be required.

The value of a business fluctuates based on the trading climate, such as Covid-19 and Brexit, so it’s essential to negotiate a divorce settlement based on an up-to-date valuation of the business.

If a spouse exits the business upon divorce, the business valuation will help round up how much their shares in the business are worth and indicate if the transfer of any business assets is required.

To value a business, the business valuer will require three years’ worth of company accounts. At Selling My Business, our team of expert business valuers can value a business for divorce for a fee. Founded in 1956, we have over 60 years of experience in valuing and selling businesses.

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