The Family Business in a Divorce

When there is a potential financial dispute following a family breakdown or divorce, it is essential to obtain a full set of accounts if one of the parties owns (or part owns) a business.

The accounts should give information about the finances of the business and about its trading performance.  However, the accounts may not give the full picture; values shown for assets are rarely up to date; they may have been manipulated, perhaps by deliberate under-valuing of assets and of stocks; debtors may be incorrectly shown.  Accounts are unlikely to give an easy understanding of the business, its strategy, its expansion plans and its future prospects.

A divorce court has power to allocate the value of any asset (including a business) to either spouse – or to split its value between them; this power should be borne in mind when a divorce settlement is being negotiated.

A business-owning spouse, required to pay a lump sum to the other spouse, may have to raise cash, a process which can be far from straightforward.  In this context the main issues to be addressed include the liquidity of the business and/or borrowing ability of the paying party.

It is unlikely that the Court will order forced sale of a business if the paying party’s main livelihood is derived from it, or if such an order would prejudice outside investors.  There have been plenty of cases showing that the Court will be reluctant to force a sale whose result would “kill the goose that lays the golden egg”.

The role of your solicitor (often with the assistance of an expert accountant) is to explain the financial situation, to value the assets and liabilities and to advise on how a settlement may be financed, having regard to taxation and liquidity, which will need to be determined on a case-by-case basis.

For assistance in this area please contact Brenda Wong Robinson on 01793 698106 or by email at [email protected]