Small Business Owners and Divorce
Many small businesses are owned by members of the same family. Going through a divorce can be a difficult and often distressing process, which can become increasingly complex when there is also a family business to consider.
There is often confusion as to how a divorce may impact a family business. If one of the parties getting divorced owns the business they understandably want to protect it. Equally, in circumstances where one party does not have any share or play any part in the business, they are keen to know whether they are entitled to anything from it.
There is no set formula as to how a business should be dealt with in divorce. The court will be keen to not unnecessarily interfere with the business but the business owner should be aware that any capital value that the business has, may form part of the matrimonial pot. It might be possible to offset any interest your spouse may have in the business by offering them more of other assets held, such as equity in the family home. However, in those circumstances the business owner should take advice on the appropriate amount to offset because a business interest is not a liquid asset and so a pound for pound offset is unlikely to be appropriate. There may also be the opportunity to bring in arguments in relation to one party’s contributions if these have not been matched by the other, to try and ringfence some, or all of, the business from the assets to be divided.
If a business has no capital value and simply generates an income stream for one party, the court is unlikely to consider a valuation as a proportionate and appropriate step. In those circumstances the spouse may be entitled to receive maintenance payments from the business owner’s income stream.
If a business does have a capital value, consideration still needs to be given as to whether a valuation (a potentially costly and time consuming exercise) is the right step to take. Even where the court is minded to look at the capital value of a business it is important that the right expert is instructed and the right questions asked, as both of these can greatly impact on the valuation itself.
Business owners need careful, thoughtful and experienced advice when separating, particularly where consideration needs to be given to business assets. Business owners should also consider taking advice to protect themselves and their business in the future, by considering a prenuptial agreement, partnership deed or shareholder agreement. Potentially these are complex areas and ones where the advice needs to encompass a wider, deeper, understanding of commercial business structures and the objectives of the entrepreneur.
Business owners seeking advice on family law matters should contact Siobhan Rooney at Pictons.