How partnerships are dealt with on divorce or civil partnership dissolution

Having explored what a partnership is, we turn our attention to how a partnership is treated if a marriage or civil partnership ends.

On any divorce or dissolution, whether or not a partnership is involved, both parties are entitled to a fair and reasonable financial settlement.

How is a divorce settlement reached?

A ‘checklist’ of issues must be considered in every case and underpin the principles of any settlement.

They are set out in section 25 Matrimonial Causes Act 1925. They include:

• the income and earning capacity of both parties now and in the foreseeable future
• the financial needs, obligations and responsibilities of both parties now and in the foreseeable future
• the standard of living prior to relationship breakdown
• the age of the parties and duration of the marriage or civil partnership
• any mental or physical disability of either of the parties
• the contributions of the parties to the welfare of the family
• the conduct of the parties (in limited circumstances).

First consideration must be given to the welfare of any child under the age of 18.

Key Issues for business owners

Partners in a business need to consider some specific issues. See key issues for business owners in divorce settlements.

They include:

Valuations

Not every business or partnership will necessitate a formal valuation on a divorce. For example, a partnership share that is simply an income stream is unlikely to give rise to the need for a valuation.

Issues to consider when assessing whether a partnership may need to be valued include where:

• there is a likelihood of the business being sold in the foreseeable future, perhaps where the partner is approaching retirement and looking at a buy-out
• the accounts show significant capital assets or where there is concern the capital may be undervalued such as land or property that may be based on historic purchase prices
• the accounts show sizeable profits and turnover or where there is a significant discrepancy between profit and the standard of living maintained by the parties
• if there are concerns relating to the liquidity of the business
• there are concerns of non-disclosure relating to the accounts which may not therefore provide the full picture.

Learn more about business valuations on divorce or dissolution

Specific partnership practices

Businesses and professional practices using a partnership structure will also involve sector specific issues. They include:

Professional partnerships

Many professions traditionally conduct their business through a partnership, including LLPs. They include lawyers, accountants and architects. Learn more about partnership issues for professionals.

Medical and dental partnerships

Doctors and dentists frequently operate as a partnership, and these practices have their own complexities and issues. It is important to seek legal advice from lawyers who have expertise in these areas, including those at Weightmans. Our family team works closely with our primary care, commercial, healthcare and tax practitioners.

Farming partnerships

Farming partnerships also present complexities on divorce or dissolution. The partnership may have originated from one side of the family over generations, raising issues such as how inheritance and non-matrimonial assets should be treated. Farm partnerships may also be capital rich, but income poor, which lends itself to challenging situations when addressing a divorce settlement. Again, specialist advice from expert lawyers is required, such as those at Weightmans. Our family team works closely with our private wealth, tax and agricultural teams.

Resolving disputes

Resolving conflict in businesses requires a nuanced approach that acknowledges the intricate interplay between family dynamics and business.

A partnership or other business involving a family member is a unique entity, combining personal relationships with professional dynamics. The line between personal issues and business priorities can become blurred leading to conflict that, if left unresolved, may threaten both the family and the business itself.

Whether that conflict arises from within the business, or the business becomes the potential casualty of a family, partnership or shareholder dispute, our team of mediators can provide a swift, structured approach to navigating what can be some of the most delicate, complex and emotionally charged cases, fostering collaboration and communication.

Learn more about mediating conflicts in family businesses

Steps to avoid business disruption on a divorce or dissolution of civil partnership

In order to be successful in business, it is important to forward plan, pre-empt potential threats and put in place a strategic plan to deal with whatever may lie ahead. 

The effect of relationship breakdown can be far reaching.  Not only can it have a detrimental impact on productivity and cause short-term disruption, but it can often have a significant impact on any long-term plan for the business.

Learn more about the steps that can be taken to try and protect a business from relationship breakdown.