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Talking business when divorcing?

 November 2020 |  Joanne Green

We are very often contacted by clients who own or have an interest in a business and are concerned about what will happen to the business upon divorce.

When parties divorce, all assets will be considered, to include any interest that either party may have in a business.

What is likely to happen to a business when dividing the assets upon divorce?

Where a parties' assets comprise a business or a share in a business, it can give rise to complex issues regarding how the asset should be dealt with by the court. There are a number of options available to the court to ensure that the business asset is dealt with as fairly as possible.

Order for sale

The court has the power to order the sale of shares in a private limited company. However, in reality, it is unlikely that the court would make such an order particularly if the company is a family business and sale of the shares could potentially bring an end to future income.

Transfer of shares

Shares in a limited company that are owned by either party constitute property and therefore they can be subject to an order of the court that they be transferred to the other party. 

Given that the court will be keen for a clean break to be achieved, it is less common for the court to transfer shares to one party so that both parties become shareholders in the business, as this will result in the parties retaining a financial connection after the divorce has been finalised. 

It is more common where both parties have shares in a company for the court to order that one party’s shares are transferred to the other spouse.

Periodical payments

Where the asset base is not large enough for one party’s claim in the business to be offset by them receiving a greater share of the liquid capital, and it is not practical for shares in the company to be sold or transferred then periodical payments may be necessary to ensure that both parties receive a benefit from the business moving forward. Where this approach is used, the court will treat the business as a future income stream rather than an asset to avoid the risk of double counting.

Lump sums

If a transfer of shares would not be appropriate and it is not possible to sell shares in the company then the court may order for the party that retains the business asset to pay a lump sum to the other party.

We have years of experience in advising clients on how best to protect their assets upon divorce, including those clients who have an interest in a business.

If you are considering divorce proceedings and need advice on protecting your business, please contact us on 01234 343134 or so that we can guide you through the process and ensure that you receive a positive outcome for a brighter future.

Joanne Green is a specialist family lawyer with Fullers Family Law.

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