Is My Wife Entitled to Half My Business if We Divorce?

Divorce can be stressful, especially if you have a business to think about too.

In this article, we address the question ‘Is my wife entitled to half my business if we divorce?’ but we discuss how you can protect your business in divorce regardless of gender.

Typically, only the interest owned by the party divorcing or separating will be considered, but either way, a summary and valuation of the whole business is required.

If you are not yet married, read our article: how to protect your assets before marriage, next

How do the courts treat business assets in a divorce settlement?

In divorce, a business is an asset. The business type, longevity, and your spouse’s involvement impact how much it will appear in the financial agreement.

Any interest in a business must be disclosed during the divorce process in the same way as any other asset. Your share of any value in the business is considered when the marital assets are divided between parties.

If your business was set up long before you married, or even before you met your spouse, then that will be important. Courts aim to distribute matrimonial assets fairly, but commonly assets acquired before marriage are not considered matrimonial.

However, your spouse could be entitled to an interest if the business continued during the marriage. Business growth that occurred during the marriage will likely be subject to division, but this will depend on how long your marriage is.

Step 1 - Determine the business structure and ownership

The way your business is structured determines how assets are affected:

• Sole traders own all company assets individually.
• In a partnership, assets are co-owned according to a partnership agreement equally or per shares.
• In a limited company, the company itself owns the assets rather than individual directors.

Shares are evaluated from the business structure of a company and its shareholding influences.

Step 2 - Business asset valuation

Once the business structure has been defined, you will know who legally owns the assets and liabilities. The next step is to confirm the value of the business in terms of tangible and intangible assets.

Valuation is generally established by one or more of the following:

• Business assets – applicable for asset-heavy businesses such as real estate, farming, or manufacturing.
• Trading patterns – past trading profits and projected future growth are considered.
• Business income – applicable for skill-based businesses where income is substantial but tangible assets are minimal, such as web design.

What else is included in the business asset valuation?

• Cash reserves.
• Corporate Supported Living Standards.
• Corporate offices, vehicles, etc.
• Value of personal and corporate pensions.
• The possibility to withdraw capital from the business.
• The possibility to borrow against the business or its assets.
• Company ownership structure (as detailed above in this article)

If you and your spouse agree on business values, it will be less costly. If there’s a dispute, though, complicated and expensive court fees can come into play.

It is important to enlist expert help to value the business, usually done by an accountant. However, valuing a business can be complex so it’s a good idea to prioritise getting legal advice.

How to protect your business in divorce

Courts will always try to find a solution so that the business is preserved. Business structures are largely unaffected by divorce and can continue as is.

This means that it’s unlikely you have to sell or transfer your business, but it might mean that money or other assets need to be found in place of your spouse’s interest in the business.

For example, a share in the marital property could be used as a substitute for the value of business assets. In cases where the value of the replacement assets isn’t sufficient, a certain number of shares may need to be transferred to the other spouse.

Whilst you cannot omit business interests from a divorce settlement, there are ways you can protect your business in a divorce:

• A postnuptial agreement or separation agreement can help protect business assets.
• Separating business assets from household finances. In divorce proceedings, both spouses need to separate company/business profits from the marriage. For example, not using the profits to pay off the mortgage on the family home, etc.
• Forfeiting other assets to maintain full control of your business or business interests.

If you are concerned that your spouse is trying to devalue business assets, a freezing order may be necessary. This injunction is made by a court to block your spouse from dealing with their assets.

For this to happen, a court must be satisfied that there is a risk your spouse will devalue or dispose of an asset to prevent you from receiving your fair share in the financial settlement.

If you suspect this, it’s vital to act as quickly as possible and take preventative action by way of a freezing order. Again, the advice here is to take legal advice before actioning anything.

Is my family business safe in divorce?

A family business is where both parties contribute to the business (e.g. a partnership, or with equal shares as directors of the company).

In an amicable split, both spouses may remain as business partners or one spouse may maintain their share in the business and step down from management, allowing their ex-partner to manage the business.

Shared management of the business might not be the best solution for everyone as it’s easy to let disagreements damage business performance.

To combat this, a spouse can sell their share in the business to their former partner (husband, wife, civil partner), or a brand-new director or business partner.

If none of this works, the divorcing couple can sell their business and split the assets or ask the court for a judgment.

Can my spouse dispute my claim to my business in a divorce?

Couples who are divorcing may not always agree about how much a business is worth, specifically if only one party has ever been involved in it.

There are cases where the business owner undervalues their business, and on the other hand, a spouse could overvalue the business in a bid to take more in the financial settlement.

If your ex-partner is not cooperating, the court can help to retrieve data from their bank account or accountant directly.

It is worth noting that:

• Experts, such as accountants, helping to gain the true value of a business can be expensive. People in the past have spent thousands of pounds on specialists, but in some cases, it’s the only choice due to an uncooperative spouse.
• The fortunes of the business might have taken a turn for the worse in recent times; business owners tend to be more optimistic about their own business so might believe it to be more profitable than it is.

Step 3 - How to resolve a divorce dispute over a business asset

• Ask your solicitor to comb through the company’s books to see if a possible under or over-valuation needs further investigation.
• You and your spouse agree to use a ‘single joint expert’ to value the business and provide a neutral assessment.
• Each spouse uses their expert. This is the costliest option and can cause more problems than it resolves.
• You and your ex-partner might want to explore mediation or other dispute resolution methods instead of experts.