Divorce becomes more complicated when the couple splitting up are co-directors in a company. Limited companies are considered a matrimonial asset, and as such will be divided fairly in the same way as other assets of the marriage. With over 1.4 million companies in the UK being run by couples, it’s a good idea to understand what will happen to the business in the event of a divorce.
The court will give serious consideration to how best to divide a company as part of the overall matrimonial assets. It will recognise that it often provides an income for the family and do its best to ensure that any decision taken gives the company the best chance of continuing to function in the same way.
There are many factors that they will take into account when assessing how to split the assets equally, such as any property owned, pension schemes, provision for children and so on. For this reason it is vital to obtain high quality professional advice from an expert in corporate law if you are co-owners of a company and are going through a divorce. Below, we suggest a number of options that the court may consider.
Buying one partner out
This is dependent upon the financial capacity of each partner, although it doesn’t necessarily mean a lump sum payment has to be made. It could be the case that payments are able to be made by installments, or exchanged for a comparable asset. If the company provides an income for the family, including any children, this will also be taken into consideration.
Continuing to be business partners
The court has the power to transfer company shares from one spouse to another, however there are situations where they are willing to carry on being partners in a business capacity. Here they may retain the same shareholding but create a new agreement to ensure the business continues running successfully.
Splitting the business up
Depending upon the type of business it is, it may be possible to divide the company up into two separate entities. For example, if a company currently has different areas of trade, it may be conceivable to separate those and form two different companies from them. Again, expert advice would be recommended if this was being considered.
Selling the business as a going concern
Where an agreement can’t be reached about the dividing of company shares, or it is not possible to continue running it as partners, the court does have the authority to instruct the sale of the business, with any profits being divided between the divorcing couple.
The most common outcomes
Most divorcing couples opt for a clean break, and so it is common for a spouse who established or generally runs the business to continue whilst the other is awarded assets of equivalent value. It is not the norm for divorcing couples to be forced to continue working together against their wishes.
In a simple 50/50 ownership structure, neither spouse can make decisions without the consent of the other. If the business is to be sold, it will need to be professionally valued, and will be inclusive of assets, earnings and structure. It will also take into account any company borrowing.
A final thought
It goes without saying that every case is unique, has its own mitigating factors and can’t be predicted by the outcome of other cases. All of the options require a complex legal process, but the more you agree, the less it is likely to cost you.