Business assets on divorce or dissolution: How the structure of the business affects the approach to be adopted

Resolving financial matters on divorce or dissolution can be a challenging process, especially when it involves the valuation and division of business assets. From sole traders to partnerships and limited companies, different types of business assets can present their own unique challenges and considerations in divorce or dissolution proceedings.

In this article we explore the difference between the three main types of business structures and discuss some common issues that arise on valuation and division in the context of financial remedy proceedings following divorce or dissolution.

Different types of business structures

Sole trader

Sole traders operate as individuals, and their business assets are often closely intertwined with personal assets. In divorce or dissolution, the distinction between personal and business assets may blur, leading to complex valuation and division issues.

Valuing sole traderships can be tricky, and the courts will look closely at the extent to which the business contributed to the family’s wealth before determining whether it should be included in the matrimonial pot for division.

Partnerships

Partnerships involve two or more individuals sharing ownership and responsibility for the business. Unlike companies, partnerships do not issue shares and some partnerships may be structured to have unlimited liability. It is therefore important to seek advice at an early stage on the steps to take to limit liability as between the parties and the partnership.

On divorce or dissolution, the partnership's assets and liabilities are subject to division, potentially affecting not only the partners but also their spouses. Depending on the structure, valuing partnership interests can be challenging, especially if there are disagreements over the business's worth or future prospects.

Limited companies

Limited companies are the most common type of business asset and are classed as separate legal entities, distinct from their owners. Either one or both spouses may hold shares or other interests in a limited company, which can complicate the management of the business and asset division.

There are various methods for valuating a limited company and it is important to obtain specialist advice in order to determine the most appropriate method.

The value of a party’s shares may be affected by, for example, market conditions, company performance, and future earning potential.

Summary

Navigating the complexities of divorce and dissolution, where one or both parties’ own business assets, requires careful consideration of the various factors, including asset classification, valuation methods and liquidity concerns.

Seeking professional advice from legal and financial experts familiar with both family law and business and accountancy can help couples achieve a fair settlement that protects their interests and preserves the viability of the business concerned.