Navigating a divorce when a family-run business is involved: Ann Robinson

During the marriage, a business may have been established, often with one or both spouses as directors and one as the company secretary, with shares being allocated to each of them, even though only one of them is actively involved in its day-to-day running.

This can make good sense for tax efficiency purposes but presents additional challenges should this couple decide to divorce.

Often, there is a mismatch between divorcing couples regarding the speed at which they want to resolve financial matters, not least because one may still seek reconciliation.

Where one spouse is still living in the family home (which in some cases may need to be sold) and is receiving regular financial benefit from the family business without being actively involved in the day-to-day work, they are often in less of a hurry to resolve a financial divorce settlement.

Their spouse on the other hand, may be living in temporary accommodation and working long hours in the family-owned business - these circumstances will often lead to one party feeling aggrieved.

However, a divorce court does not look at the business in isolation but instead in the wider context of the couple and family’s financial situation and circumstances. Some couples may be willing and able to remain in business together despite divorcing, however, more often than not, this delay in tackling the future of the business as part of an overall divorce settlement can lead to additional problems.

Taking a proactive approach to dealing with such matters can help to reduce conflict and support the business’ future success.

In the case that only one spouse is retaining the business, it is essential that professional and legal advice is sought prior to any shares being transferred or resignations finalised.

This ensures that the value of the benefit which the business represents can be effectively ascertained and fairly factored into the divorce settlement. Any tax implications arising from the transfer, or extraction of money from the business, should also be identified.

The initial step towards reaching a divorce agreement is to value the family business. It is rarely possible to do this accurately by looking solely at the latest trading accounts.

Whether you are involved in court proceedings or negotiating outside the court process, it is best advised to jointly obtain a business valuation from an independent accountant in order to aid negotiations. There are several different methods of doing this, for example based on net assets or maintainable earnings.

The valuer can also be asked to advise on additional factors such as the likely level of income from the business going forward or the ability to extract funds to pay off the departing spouse.

Valuations are not an exact science but they are often an essential tool and good starting point for helping a couple and the court to reach a decision about the treatment of the business in divorce.

Once the business value has been confirmed, it will not necessarily be as simple as dividing the figure in two between the spouses. Current divorce laws in England and Wales are much more nuanced and the court retains an overall discretion in establishing how to divide assets and income to achieve fairness for the couple.

Ann Robinson is head of family law at Blacks Solicitors