As a shareholder in a private limited company, navigating how to deal with your assets in divorce can seem like a dauting process.
That is why Business Asset Divorce Specialist Rosemary Sharp has put together this article answering some of the most frequently asked questions…
Is my limited company protected from divorce?
As a shareholder in a private limited company, your shareholding will need to be disclosed as part of your financial disclosure, which is a key steppingstone in reaching a financial settlement.
Your company and shareholding is not automatically protected in a divorce. How it’s treated will vary depending on the specific facts of your situation.
Can my wife or husband take half my limited company?
No, not necessarily. When a business is established and operated you, the family court will usually look for you to retain the business. However, the other party can receive a lump sum or a greater share of other assets.
The Family court will want to know the value of your company, whether it is solely income producing or whether it has any underlying value and, if so, whether it holds any liquidity. The court will be mindful not to hamstring the company and prevent it from functioning.
If the business is jointly owned with your spouse, it is unlikely the court will order both parties to remain within the business (unless the intention is to sell the company). However, this can be agreed by consent in certain circumstances.
How can I protect my Ltd company in divorce?
If you already have an established company before you get married, a prenuptial agreement is the best way to protect your shareholding.
If you have any questions about prenuptial agreements or are looking to get one, you can speak to a specialist team member on 01202 499255 or by filling in the form.
What happens to company shares in divorce?
There is a two-stage process when you are trying to reach a financial settlement in a divorce.
Quantification
The value of your company’s shares will need to be determined. If a value cannot be agreed, the family court will appoint an independent accountant, who will undertake a valuation and comment on liquidity and other issues.
Distribution
You and your ex-spouse will then need to agree what should happen to those shares. If you cannot decide the court will then decide for you.
Typically, the shares will be retained by the main party involved with the business and the value accounted for within the financial settlement and other assets available. In some circumstances you may both be able to retain your respective shareholdings.
How to protect company shares from divorce?
Again, if the shares are owned prior to the marriage, or are due to be inherited during the marriage, a prenuptial agreement is the best way to protect those assets in case of a divorce.
Other protection can come in the form of the shareholders agreement. This can set out things like the valuation formula to be used when shares are sold or whether any pre-emption rights apply.
You can read my colleague Simon Immins’ article on prenuptial agreements here.
Can I sell my half of a Ltd Company in divorce?
Financial disclosure is a crucial part of reaching a financial settlement. Any disposals of assets during or shortly before separation will need to be explained and the proceeds accounted for.
When considering the structure of a financial settlement involving a jointly owned private limited company, it may be possible for the company itself to buy back one party’s shares.
Specialist tax advice will be required to advise on the best purchase structure and if HMRC approval is required.
How do you value shares in a divorce?
There are several different ways a private company’s shareholding can be valued. The most common are:
- Net Assets Basis
- Earnings based – (EBITDA x multiplier)
Expert advice will likely be needed from an accountant about the best method depending on the specifics of the company involved.
A valuation will also need to consider whether discounts should apply (e.g. keyman or minority shareholding) together with whether there is liquidity within the company.
It can also be helpful to have the valuer comment on the maintainable earnings the shareholders could be taking from the business.
How businesses are dealt with in a divorce can be complex. A prenuptial is a good way to ensure your business is protected should the worst happen. If you’re a business owner who is thinking about a divorce, early legal advice about how your business is likely to be treated and the financial settlement options available to you is crucial.
Specialist Business in Divorce Solicitors
If after reading this you have any questions about how to protect your Limited Company in divorce, you can get in touch with a member of the Family Team on 01202 499255 or by filling in the form.
We offer all new clients a free initial chat, giving you the opportunity to meet the solicitor you will be working with and discuss your specific needs.
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