If you are getting divorced and own a shop with your husband, you may be concerned about how things will work out financially. When it came to setting up your business initially, the excitement and planning may have overridden the practical side of things, including what could happen to the business if you divorce. Business and divorce can be complicated in some cases, so we’ve put together some of the factors you should consider.
Whether your business operates as a sole trader, a Limited Company, or a partnership, in England, Wales and Northern Ireland, it will usually be considered a matrimonial asset by the courts. Like a family home, pension or investment, it is regarded as an asset that you and your spouse built jointly during your marriage. Courts work on the basis of achieving a 50/50 split but the ultimate split varies depending on circumstances.
If Your Shop is a Sole Trader Business
Many shops run as sole trader businesses and it can be one of the most straight forward structures for courts to handle in financial settlements because there are no shared interests. The main factors used for valuing a sole trader business are the income and profits it generates; plus, property or vehicles the business owns.
If Your Shop is a Partnership Business
With a partnership business structure, although it makes sense in the beginning, it can be more challenging to value it in the event of a divorce. The percentage share you apportioned between you when you started the business, will have to considered across all areas of your company. You may need a financial appraiser to see what the value of the business is – a valuation will assess the less tangible assets of the business, its growth potential.
If Your Shop Has a Limited Company Structure
It is a misconception that limited companies are protected from divorce automatically. Shares in a limited company are likely to be included in the matrimonial pot in a divorce, or dissolution of a civil partnership. The courts have the power to transfer shares between parties which is often the case when both are shareholders, and even on rarer occasions when there is only one spouse with shares. The court will limit the action they take as much as possible to reduce the impact on other shareholders.
How is a Business Valued?
In all cases, your business will potentially need to be valued to determine the final amount added to all other matrimonial assets. Business owners need to provide an estimated value of the business along with company accounts and a confirmation of the figures by an accountant. Factors included in a valuation are predicted profits, past profits, turnover, plus business debts and any property the business owns. When an agreement cannot be reached, divorcing parties may have to appoint an independent financial appraiser.
Can I Protect My Business?
In order to protect your business from a divorce, you and your future spouse can put a prenuptial agreement into place before you tie the knot. If you are already married, then a post-nuptial agreement is an option too.
These agreements can stipulate what would happen to your business in the event of a divorce and how finances would be potentially split, if at all. Also, while you are running your business, you can protect on an ongoing basis by keeping business finances separate from matrimonial finances. For example, putting all business profits back into the business and not using it to pay for the mortgage on the matrimonial home.