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Business Woman

The most valuable asset which parties own will typically be the family home, land or a business.  At AWD Law, we often deal with cases which involve a business and would like to share with you some common misconceptions and questions raised by our clients.

My business is in my sole name, so it must belong to me?

Whilst the business may be owned by you or you may have shares in someone else’s business, it is still an asset which may form part of a divorce settlement or civil partnership dissolution.  If you are facing divorce or civil partnership proceedings, it is important that you provide your lawyer with as much information about your business, the more information you can provide, the better the advice your lawyer should be able to provide you with.

Will the business be sold?

It is often an issue for lawyers and the court to determine the extent to which the family business is a resource to be drawn against so as to fund a divorce or civil partnership settlement.  In the search for liquidity, it is risky to lose sight of the fact that in many cases, the shares in a private family company are a source of income for both parties as well as a capital asset.  The court is cautious not to jeopardise an income producing asset, since to do so, it may not benefit the parties and/or the children.  Whether a company can be used to raise a capital sum or to generate an income stream, will be dependant upon an agreement by a shareholder spouse; or without the agreement of the shareholder spouse, the ability to pierce the corporate veil; or judicial encouragement of those in control of the company.  Piercing the corporate veil and judicial encouragement are questions for the Judge and the amount of the capital to be raised, without damaging the company.  This will be determined by the Trial Judge, usually with the assistance of expert evidence.  The court will also consider whether the business has any other separate assets which can be used to meet your spouse’s claims again, without damaging the profitability of the business, such assets could be land or properties (perhaps in a farming business or a property development business).

Can I keep my business and my spouse/civil partner keep the house?

Again, it depends upon the value of the business, the court can consider whether there are other non business assets which can be transferred to your spouse/civil partner, such as a larger share of the family home, or investments/savings which can offset the spouse’s claims against the business.

What will happen if I cannot sell the business or raise any other funds and we have no other assets?

If the business was mainly used to provide an income stream to support the family, it would be unfair for the business to be sold and also unfair to the other spouse to lose the benefit of the income.  Therefore, in this type of situation, the spouse retaining the business can agree to either pay a capital amount over a set period of time, or agree to pay a percentage of the net proceeds of the sale of the business in the future.  Alternatively, an agreement can be reached between the parties to pay spousal maintenance to the other spouse and to capitalise the spousal maintenance in the future when the business is eventually sold.

Can we still run the business together?

If the parties run the business together and it is generating a healthy income stream, the parties may decide to continue running the business together, especially if there are children who still need supporting.  However, this approach is only suitable for people who are able to get on and make decisions together.

Do I need to go to court?

No, it is far better to try to reach an agreement out of court.  There are various ways to reach an agreement such as negotiation between lawyers, round the table meetings between the parties and lawyers or for the parties to attend mediation.  It is only when an agreement cannot be reached that the court will become involved.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

If you have any queries relating to the above please contact us by email at info@awdlaw.co.uk / enquiries@awdlaw.co.uk or by telephone on 01329 232314 and we will put you through to the correct person who can help you.