Weekly Family Law Update January 19, 2022

Is my spouse entitled to half my business?

It is obviously not unusual for someone going through divorce to have an interest in a business, whether as a sole or part owner.

The divorce may be a very worrying time for them – after all, the business is one of their assets, and the divorce court divides all assets between the parties. Will this mean that their spouse gets half of the business?

The answer to the question depends upon all of the circumstances of the case, but there are a few general principles that can provide some guidance.

Is the business a marital asset?

The divorce court can divide all marital assets between the parties, irrespective of who owns them. Marital assets generally include all assets of any type owned by either party, and accordingly can include business assets.

The divorce court can therefore transfer business assets between the parties.

The exception to this is when the business is a company – the court has no power to transfer the company, but can order a transfer of its shares.  So when is the court likely to order the transfer of all or part of the business?

Valuation of the business

Before the court decides what, if anything, to do with a business, it will want to know the business’s value.

The business will usually be valued by an expert valuer, jointly instructed by the parties. The valuation will be based upon such factors as the assets of the business and the profit that the business is expected to make in the future.

The structure of the business will also be a consideration: whether the owner is a sole trader, it is a partnership, or it is a limited company.

Obviously, some businesses may have a substantial value, whilst other businesses, despite being perfectly viable, may have little or no value.

And the value of a business may not be directly comparable to the value of other types of assets. Most businesses are not liquid assets that can be quickly converted into cash. And there is always an element of risk in a business, unlike other types of asset. The court will take these things into account when considering a business valuation.

Other factors that may affect the court’s decision

It would be impossible to list all of the possible factors that might affect a court’s decision regarding a business, but the following points may have a bearing.

The business will, of course, produce an income, which may benefit not just the owning spouse but also the other spouse and any dependent children. The court will not therefore usually want to do anything that is likely to curtail or jeopardise that income.

In most cases the court will, if possible, leave the business in the hands of the business-owning spouse, compensating the other spouse by giving them a greater share of other assets, such as the former matrimonial home. The overall division of assets depends upon the same factors applicable in every case, in particular the financial needs of the parties.

Of course, there may not be sufficient other assets available, in which case the court can transfer business assets (or shares, if the business is a company) to the other spouse, if the assets can be safely realised. Another possibility here is that the business be used to raise funds to pay the other spouse. Alternatively, the court can order that the business be sold, but this is very unusual.

If both spouses have an interest in the business then this can obviously lead to difficulties, unless they remain on sufficiently good terms to continue working together. If not, then the court will have to decide which of them is the most appropriate person to keep the business, and compensate the other spouse accordingly.

So the answer to the question posed above is: your spouse may be entitled to half of your business, but whether they are, and exactly what happens, will depend upon the facts of the case.

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