Will I have to sell my business on divorce?

November 4, 2022

It is unusual for a business owning spouse to be forced to sell their business on divorce.

The Family Court has the power to make an Order for the shares in a company to be sold. However, in most cases, there are other alternatives which usually mean that the sale of the business can be avoided.

If you have an interest in a business, it will need to be taken into account on divorce. This is because the business is a “financial resource” (assuming it is viable) which is available to you.

There have been a number of cases involving spouses who are the joint shareholders in a business. Often, neither spouse wants the business to be sold. It is sometimes agreed that the Husband should keep running the business subsequent to the separation. In return, the Wife is entitled to her 50% share of the business. The only question is how does the wife get her share of the capital in the company.

In such cases, there is sometimes sufficient liquidity within the business for a “company owned purchase of shares”. However, extracting capital from the business can have significant tax implications.

Such an arrangement, involves working closely with corporate lawyers and accountants to structure the release of the capital in the most efficient way and also to formally record it within the divorce settlement.

Even in cases where only one spouse may have an interest in the business, a sale can usually be avoided by, for example:-

• The value of the business being offset against other assets of the marriage (for example, one spouse could receive more from the family home in return for the other spouse keeping the business.

• Periodical payments (spousal maintenance as it is more commonly known) may be paid by the business owning spouse to the other spouse. This might be appropriate if the shares in the company have provided a source of income for the family and ongoing financial support is still needed. The amount of spousal maintenance and the duration and “the work” that needs to be done by the other spouse needs to be carefully calculated.

• It can be agreed that the other spouse should gets shares in the company (which then enables him or her to receive dividend payments). This is a less than ideal solution.

The above is not an exhaustive list and a tailored approach will always be required where there are business interests to consider.

If you are concerned about your business on divorce, you may wish to speak with one of our experts for a first (or even a second) opinion.

Dominic Lee

John Hooper & Co

We specialise in family law and are recognised as a leading firm (Ranked Tier 1 in the Legal 500). If you would like to discuss your case, please contact us today.