What happens to a limited company on divorce?

When looking at a financial settlement, all of the assets that you and your spouse own or have an interest in will for part of the ‘pot’ to be divided and that includes businesses whether they be sole trader, limited company or partnerships.

As part of reaching an agreement, any interest or shareholding in the business will need to be valued.    That valuation will need to take into account both the value of the shares and an assessment as to the ongoing income that will be received.   You should also consider asking the valuer to report on the company’s liquidity. as that will tell you how much cash is available in the company.

There are various different ways of ensuring a fair settlement which involves a business and the most common are:

• Sale of the company and division of the proceeds.
• Buy out of one parties’ interest.
• Offsetting one parties’ interest in the business against another asset e.g. the family home.
• Ongoing maintenance from the businesses income.
• Division of the shareholding so that both parties are involved in the company

It is rare that limited companies are sold within divorce proceedings as this will usually mean that the income stream to at least one party will be lost.

Every divorce is different and working out which is the best option, will depend on the other assets you have and the circumstances of you and your family.  It is also important to ensure that accounting and tax advice is taken before deciding on a proposal as the tax implications can be significant.

Contact our specialist divorce lawyers to find out how we can ensure that any business interest is properly accounted for, both as a store of future value and as a going concern, in any divorce negotiations you might be contemplating.