What Happens To Business Interests In The Face Of Divorce?

• Published date: 29 January 2021
• Subject Matter: Family and Matrimonial, Family Law, Divorce
• Law Firm: BLM
• Author: Mr Matthew Poli and Yasmin Khan-Gunns

How do the family courts treat businesses in divorce proceedings? From a corporate point of view, how should shares be dealt with? BLM Family Solicitor Yasmin Khan-Gunns and London Head of Corporate & Commercial Matthew Poli join forces to explore this further.

The family law perspective

How will my business be dealt with on divorce?

A judge must consider all of the circumstances of the case, with first consideration being given to the welfare of any minor child or children of the family. Before making any decisions about the business, a judge will want full financial disclosure of it.

What financial disclosure do I need to provide the judge with for my business on divorce?

The parties will need to complete a document called Form E, where they will set out all of their financial disclosure with documentary evidence in support. Among other things, the party with the business will need to provide:

• the name and nature of the business and the extent of their business interest;
• confirmation of whether the party is a sole trader, partner in a partnership with others or shareholder in a limited company;
• total amount of any sums owed to the party by the business by way of a director's loan account, partnership capital or current accounts;
• an estimate of the current value of the parties' interest in the business with an explanation;
• an estimate of any Capital Gains Tax (CGT) that would be payable if the party were to dispose of the business now;
• the net value of the parties interest in the business after payment of CGT;
• a copy of the business accounts for the last two financial years;
• any documentation that is available to confirm the estimate of the current value of the business.

Will I need to obtain a valuation of my business or business interest on divorce?

It may be necessary to seek a valuation and legal advice should be sought here. If a valuation is necessary, consideration should be given to:

• how liquid the business or business interest is;
• methods available to extract funds from the business to fund a financial settlement;
• what discount needs to be applied to illiquid assets or minority shareholdings;
• whether shares need to be transferred from one party to the other;
• the income the business or business interest can provide;
• the tax implications of selling or disposing of shares in the business.

A judge will generally rely on an expert's valuation unless the expert is discredited. This said, a judge will be aware that valuations do not always provide a...