Business assets

Are business assets included in divorce?

In most cases, yes. If a business was started or grew significantly during your marriage, its value is likely to be considered a matrimonial asset – even if it’s entirely in one spouse’s name and the other has never been involved.

The court aims for a fair settlement, which means considering all the wealth the family has accumulated, including business interests.

However, the treatment of business assets depends on several factors:

• When the business was established (before or during the marriage)
• How much it has grown during the marriage
• Whether both spouses contributed (directly or indirectly)
• Whether there are enough other assets to meet both parties’ needs
• The structure of the business and practicalities of division

Types of business structures

How your business is structured affects how it’s treated in divorce:

Sole trader

If you’re a sole trader, there’s no legal separation between you and the business. Your business assets and debts are your personal assets and debts. This makes things simpler in some ways – but also means business debts are directly your liability.

Sole trader businesses often have limited “goodwill” value beyond their tangible assets. The business may essentially be worth the value of equipment, stock, and money in the bank, minus any debts and potential tax liabilities.

Partnership

If you’re in a partnership, you own a share of the partnership. This share needs to be valued. Partnership agreements often include provisions about what happens if a partner divorces – check whether yours does.

Your share can be valued, but selling it or transferring it may be complicated by the partnership agreement and your partners’ rights.

Limited company

A limited company is a separate legal entity from its shareholders. However, the shares you own in the company are your personal asset – and those shares can be valued and considered in divorce.

Even if you own 100% of a company, the company’s assets aren’t directly yours. What’s yours is the shares, and their value depends on what the company is worth.

LLP (Limited Liability Partnership)

Members of an LLP own a share of the partnership. Similar principles to partnerships apply, but with the added complexity of limited liability structures.

Valuing a business

This is often where disputes arise. Business valuations are part science, part art, and reasonable experts can reach different conclusions.

Valuation methods

Earnings-based valuation: The most common method for trading businesses. An accountant calculates the business’s “maintainable earnings” (sustainable profit) and applies a multiplier based on comparable businesses.

Asset-based valuation: Values the business based on its net assets – what it owns minus what it owes. More appropriate for property or investment companies, or businesses being wound down.

Discounted cash flow: Projects future cash flows and discounts them back to present value. Useful for businesses with predictable future income.

Market approach: Compares the business to similar businesses that have been sold. Often difficult because private company sales aren’t publicly reported.

Getting a valuation

For straightforward businesses, your existing accountant may be able to provide a valuation for little or no additional fee.

For more complex businesses, you may need a specialist forensic accountant. Costs typically range from £3,000 to £15,000 or more, depending on complexity. The valuation process usually takes 4-8 weeks.

Often, both parties jointly instruct a single expert to provide an independent valuation. This saves costs compared to each party having their own expert. If you can’t agree on an expert, the court can appoint one.

Disputed valuations

If you disagree with a valuation, options include:

• Asking questions of the expert
• Commissioning your own expert report
• Cross-examining the expert at a final hearing
• Negotiating a compromise figure

Courts ultimately decide the value if you can’t agree, but they prefer parties to reach agreement.

How courts treat business assets

Once valued, the court considers how to treat the business in the overall settlement. Options include:

Offsetting

The business owner keeps the business, and the other spouse receives a greater share of other assets (property, pensions, savings) to compensate. This is the most common approach.

Example: The business is valued at £200,000. The spouse who doesn’t own the business receives £200,000 more of other assets (like a larger share of the house or pension).

Lump sum payment

The business owner keeps the business but pays their spouse a lump sum. This might come from business funds (if available) or be paid over time.

Share transfer

Some shares in the business are transferred to the other spouse. This is unusual and generally impractical – most people don’t want to remain financially tied to their ex-partner through shared business ownership.

Sale of the business

The business is sold and proceeds divided. Courts are reluctant to order this, as it destroys a going concern and potentially affects employees and customers. But it’s sometimes the only practical option.

Deferred payment

If the business owner can’t afford to pay now, payments may be deferred – perhaps until the business is sold, or payable in instalments over time.

Protecting business interests

Before marriage

A prenuptial agreement can set out how the business should be treated if you later divorce. While not automatically binding in England and Wales, courts give significant weight to properly prepared prenups.

During marriage

Keep clear records separating business and personal finances. If you mix business funds with family spending, it becomes harder to argue the business is non-matrimonial.

During divorce

• Be honest in disclosure – hiding business value is counterproductive
• Consider jointly instructing a single valuation expert
• Think about what outcome is practically workable
• Remember that fighting costs money – sometimes compromise is cheaper

Practical considerations

Liquidity

Business value on paper doesn’t equal cash in hand. A business valued at £500,000 doesn’t mean the owner can access £500,000.

Courts recognise that “risk-laden” assets like businesses are different from “safe” assets like cash or property. The spouse keeping the business might receive a larger share to account for this risk and illiquidity.

Ongoing income

The business provides income to the family. Courts consider both the capital value and the income it generates when deciding settlements. There’s no point giving the business owner such a large payout that the business fails, leaving everyone worse off.

The non-owner spouse’s contribution

Even if only one spouse ran the business, the other’s contribution – caring for children, running the household, supporting the business owner – is recognised. The homemaker’s contribution is treated as equal to the breadwinner’s in English law.

Children’s needs

If children need to be housed and supported, this takes priority over protecting business assets. Courts may include business value in settlements even if it creates difficulties for the business owner.

If you’re the non-owner spouse

Don’t assume you have no claim because the business is in your spouse’s name or you weren’t involved in running it. You may be entitled to a share of its value.

Be wary of your spouse undervaluing the business. Signs of undervaluation include:

• Claiming the business has little value despite a comfortable lifestyle
• Sudden drops in profitability around separation
• Moving assets out of the business
• Delaying profitable contracts until after divorce

If you’re concerned about hidden value, a forensic accountant can investigate.

Getting help

Business asset cases benefit from specialist advice:

• Family solicitors experienced in business asset cases understand both the legal principles and practical issues
• Forensic accountants can value businesses and investigate if you’re concerned about hidden value
• Tax advisers can help structure settlements tax-efficiently
• Family mediators can help you negotiate without expensive litigation

The cost of professional advice often pays for itself through better outcomes.