Divorce & Your Business

Many self-employed sub-contractors have taken accountancy advice and have set themselves up as a limited company for tax reasons. A carpet fitter or joiner in these circumstances does not have a “business” which can be valued. He has “a job”.

Moving slightly up from there is someone who perhaps employs three or four people and operates from rented property. Whilst he does have “a business” it probably has no saleable value being based largely on his personal contacts. The value of this “business” lies in its ability to produce income and pay maintenance if appropriate. Where there is a business which has assets and a substantial turnover however the situation is different.

As to whether or not it should be taken into account at all and if so to what extent are governed by Section 25 of the Matrimonial Causes Act and is dealt with elsewhere. If it is to be taken into account that is where the difficulties start.

Is it solely owned? A partnership? A limited company? Who owns the shares?

A lot of matrimonial disputes which involve companies themselves have internal disputes which have to be resolved before the husband’s (usually) interest can be quantified. Even today some partnerships do not have a written partnership agreement. Some companies do not have shareholders’ agreements in place. Sometimes shareholdings have been promised and the business has been run on that basis, but the position has never been formalised.

Once the business interest is quantified how is it dealt with? The phrase used until relatively recently was “you don’t kill the goose that lays the golden egg”. This meant that largely business interests were taken as a means of earning a living and would not be attacked. However, in N v. W the Judge said “the goose will have to be taken to market”. If the business could not raise funds it would have to be sold.

How can the value in the business be realised if necessary? How is the interest valued?

There are various methods and if the company is a substantial company you will have had the benefit of accountancy advice. Typical ways of releasing money from a business are:-

• Cash reserves
• Annuity payments
• Dividends
• Realising surplus assets
• Sale of shares to an investor

None of this is very straightforward. There may be a number of people who all have an interest in the company who will not agree to a change in structure of the company. The court has no power to influence or to make orders in respect of third parties and the courts options may therefore be limited. Where there are sufficient assets, a court may make an order to “offset” other assets against the value in the business. What a court will not usually do is leave the shareholder with all the risk and the householder with all the solid risk free assets.

It is a complex area and one that requires detailed advice which will probably involve an accountant. If the value or liquidity of the assets is in doubt the matter is usually referred on a joint instruction to a jointly instructed forensic accountant who will usually produce a report. As you can imagine the costs involved in a dispute such as this can be substantial.