Divorce when you own a business

A business is not a bank account. It cannot be halved, selling it may destroy most of its value and the income you both depend on, and valuing it produces a number two experts will disagree about by a wide margin.

Will I have to sell it?

Almost certainly not, and this is the question everyone arrives with.

Courts are reluctant to order the sale of a functioning business. It usually destroys value, it frequently removes the income stream that any settlement depends on, and it tends to make both parties worse off. A sale is a last resort rather than a starting point.

What happens instead, in most cases: the business stays with the spouse who runs it, and the other spouse is compensated — through a larger share of the other assets, through payments over time, or through a share of future value.

But that outcome is not automatic. It depends on the alternatives being presented properly and early, before a sale becomes the obvious answer to a judge who has been shown nothing else.

Is the business matrimonial property?

This determines how much of it is shared, and it is usually the biggest single issue in the case.

Built entirely before the marriage and unchanged since — more likely to be treated as non-matrimonial and less readily shared.

Built during the marriage — matrimonial, and in principle shared.

Founded before but grown substantially during — which is most real cases. The argument is then about apportionment: how much of the present value is attributable to the pre-marital foundation and how much to what happened during the marriage. That is an evidential question, and it is worth real money.

Three things make a non-matrimonial argument harder: a long marriage, a business that has been mixed with the family finances, and needs that cannot be met any other way. Where needs require it, the court will use the business regardless of its character.

Valuation, and why it is fought over

Valuing a private company is not an exact exercise. Two competent accountants can produce figures that differ substantially, and each of the choices behind the number is arguable.

Which method. Earnings-based, asset-based, or a hybrid — and the choice can change the answer dramatically. A professional services business whose value walks out of the door each evening is not valued like a company with a substantial asset base.

The multiple. Derived from comparables, and comparables are a matter of judgment.

A minority discount, where the shareholding is not controlling.

Maintainable earnings — which years, and adjusted for what.

Liquidity. A valuation is not cash. A business may be worth £4m and be unable to release £400,000 without damage. The difference between value and extractable value is frequently the whole argument, and it is one the paying party must evidence rather than assert.

Tax. What it would cost to extract funds affects what is really available. A gross figure is not a net one.

A single joint expert is usual, which makes the letter of instruction unusually important — it frames the questions the expert answers, and it is drafted at a point when most people are not paying attention to it.

What the court can actually do

Offsetting — one spouse keeps the business, the other takes more of the other assets. Clean and common, but only available where there are other assets.

Payments over time, structured to what the business can bear, sometimes secured.

AWellssharing arrangement — the other spouse retains a share of the business or a share of its future realisation, rather than cash now. This shares the risk as well as the value, which is fairer where the value is uncertain and is often the sensible answer where liquidity is the problem.

Transfer of shares, which is available and is usually the worst outcome for everyone — two former spouses as shareholders in a company one of them runs.

Sale, as a last resort.

Where the spouse also worked in the business

Common, and it complicates matters in a useful way for them.

There may be a shareholding, a directorship, a loan made at the start, or years of unpaid or underpaid work. Each is a separate argument and each may add to the claim. Where the spouse is a shareholder or director, there is potentially a shareholder dispute running alongside the divorce — two sets of proceedings, each affecting the other.

This is precisely the situation where a firm that does family law alone struggles. The company law and the family law have to be run together.

What to do, and what not to do

Do not restructure the business. Moving assets, changing shareholdings, taking on debt or reducing your own drawings once a divorce is in contemplation is the fastest way to lose credibility with a judge — and the court has powers to set aside transactions intended to defeat a claim.

Do not reduce your income artificially. It is transparent, it is common, and judges see it constantly.

Do keep the business running properly. Its value on the date it is assessed is what matters.

Do get advice before disclosure, not after. What is disclosed and how it is presented shapes everything that follows.

Do consider a post-nuptial agreement if you are not yet separating but are worried. It is not binding, but a properly made agreement carries real weight — and may carry more if the qualifying nuptial agreements proposal becomes law.

What it costs

£400 per hour plus VAT, with a stage-by-stage estimate. Expert valuation fees are additional and we will tell you what range to expect before instructing anyone.

An initial advice and strategy note — what the business is likely to be treated as, what the realistic outcomes are, and what to do now — is available as a fixed fee. For a business owner at the start of a matter it is the most valuable thing we can do.

Questions

Questions people ask us

Will I have to sell my business?

Usually not. Courts avoid ordering sales that destroy value or the income a settlement depends on. But the alternatives have to be put forward properly and early.

My spouse never worked in the business. Do they still get a share?

Potentially yes. Contributions as homemaker are treated as equivalent to financial ones, and a business built during the marriage is generally matrimonial regardless of who ran it.

I started it before we married. Does that protect it?

Partly, and less than most people hope. The longer the marriage and the more the business grew during it, the more of the present value is likely to be shared. The argument is usually about proportions.

How is a company valued?

By a single joint expert in most cases, using earnings or asset-based methods. The method, the multiple, any minority discount, and what can actually be extracted without damaging the business are all arguable — which is why the letter of instruction matters more than people realise. What is aWellssharing arrangement? One spouse keeps the shares and the other receives a share of future value rather than cash now. It shares the risk as well as the value, and it is often the answer where the business is worth a great deal on paper and cannot produce cash.

Can I restructure before the divorce?

No. The court can set aside transactions intended to defeat a claim, and attempting it damages your credibility on everything else. Take advice instead.

The hub

Family law →

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Divorce: the process, and the part that actually matters →

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Financial settlements on divorce →

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