Company assets on divorce

How company assets are divided when you divorce

In divorce proceedings involving a business, the business is considered an asset. Regardless of whether you are a sole trader, limited company or a partnership, the family court will take the value of your business into account when dividing the family’s assets between you and your spouse.

However, a business is treated differently from cash or investments because it is not considered a liquid asset. Extracting a cash value from the business can be difficult and has tax implications. Or, if the business simply provides an income then it will not be treated as an asset.

Valuing business assets in a divorce is particularly challenging, which is why it is advisable to seek expert advice at an early stage. Our family law solicitors are highly experienced in this complex area. We can help you reach agreement on how best to split your business assets and ensure a fair financial settlement in the best interests of you and your family.

How we can help

Clarke Willmott has significant experience supporting business owners including family businesses and farming families. As a multidisciplinary law firm, we can call on first class legal expertise across all areas of commercial law to assist with a divorce involving business assets.

Our specialist solicitors can:

• Advise you on how your business should be handled within your divorce settlement
• Ensure the business is valued accurately and fairly
• Advise you on any financial claims that have been made against your business
• Remove your spouse from the business if they have a role in it
• Divide the business, if you and your spouse are business partners but do not wish to continue as such
• Negotiate the divorce settlement in court, if required

Martin V Martin – a case update

In the recent case of Martin v Martin [2018] EWCA Civ 2866, [2019] All ER (D) 08 (Jan), the Court of Appeal has reiterated guidance as to the approach to be taken when valuing shares in a private company for the purpose of dividing assets on divorce.

In the case, the assets included shares in a company that the husband had founded before the parties had met. By the time of the divorce in 2017, the husband’s shares in the company were worth around £160m, being a very significant portion of the total net £182m wealth.

The court confirmed that the basis on which shares in a private company will be valued will vary depending on the specific facts of a case. The court has various powers when dealing with company shares, including the power to order that private company shares be sold, but otherwise it can either fix a value or divide company assets between the parties.

When fixing a value and/or dividing private company share assets between parties, the court is required to consider the risk and liquidity of assets in order to achieve a fair balance of risk and illiquidity between the parties, in accordance with the sharing principle and in order to ensure fairness.

The fact that different assets have different levels of risk will be taken into account by the court when dividing assets on divorce in accordance with the sharing principle. Values of private companies should be treated with caution (Versteegh v Versteegh [2018] EWCA Civ 1050), and even if a court fixes a value, that value may not have the same weight as the values of other assets. There is no set formula that can be applied to assess the weight to be placed on the value of a particular asset, but the judge will be required to undertake an evaluative exercised based on all of the evidence.

Non-marital assets

The Court of Appeal was also asked to consider to what extent the husband’s company (founded before the marriage) was a non-marital asset. Again, the court confirmed that it was obliged to consider fairness and, whilst it was required to evaluate on the basis of all of the evidence whether the asset was non-marital, it still had discretion to apply weight as it saw fit in order to achieve fairness.

It was held that 80% of the husband’s business was marital property, based upon a straight line apportionment to the value from the date when the business was first incorporated to the date of the hearing.

The wife received 50% of the £146m marital wealth. The wife’s award included non-business assets of £53.7m, and shares in the husband’s company worth £19.2m. The husband retained non-business assets worth £18.4m and shares in his company worth £90.6m.

The case is a useful reminder that the court will have ultimate discretion when dividing assets on divorce and attributing weight to the values of assets, guided by fundamental principles of sharing, needs and fairness.

Contact a family lawyer

If you require family law advice and would like to get in touch with one of our expert family law solicitors, please get in touch online or call us on 0800 652 8025. We advise and act for client from our offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.