In a divorce where there is a business involved (whether it be a limited company, partnership or sole trader business) that business, or the spouse’s interest in that business, will be taken into account as an asset that is potentially capable of being shared.
However, the process of starting a divorce and achieving a financial settlement can be a long one, especially if a court process is required (potentially in excess of 12 months).
As such, it is often important to consider how the business will be managed throughout the divorce process, particularly where both spouses are directors and shareholders.
It is always a good idea take early advice (as discussed in this article: First Step in Relation to a Business Divorce? Take Advice. – Stephens Scown).
In the early stages, the following questions are frequently raised and considered (which is not intended to be an exhaustive list).
Can I continue to make key operational decisions in relation to the business without consulting my spouse?
It is generally not advisable to make such decisions without consulting your spouse, even if you have the authority to do so.
If your spouse is not involved in the business, this is less of a potential issue but it is still important to be open and transparent (there is an ongoing duty to provide full and frank disclosure in a divorce process). The more impactful the decision, the more important it is to discuss it with your spouse in advance, particularly decisions that could effect the value of the business (see below), otherwise you could be accused of intentionally trying to devalue the business so that there is less value to share with your spouse.
If your spouse is involved in the business (it is common for spouses to be directors and equal shareholders) you are both entitled to the same information and to make decisions in relation to the business from a company law perspective. Whilst that might not have happened in practice during the marriage, on separation it is generally inappropriate for one spouse to continue making all the decisions in relation to the business without consulting the other.
Can I dispose of assets owned by the business or purchase new ones during a divorce?
This is a particularly common question where the business is a trading business that is unable to ‘stand still’.
Any decision to purchase a new asset or dispose of an existing one should be made in consultation with your spouse but that is not all you should bear in mind. You should also consider the potential impact on the value of the business, as mentioned above.
If you purchase or dispose of an asset, what impact will that have on the balance sheet? Will it increase or decrease the value? What could the potential consequences of that be? What is the impact on the debt position? Might this decision impact the company’s maintainable earnings?
In general it makes more sense to wait until the divorce is finalised to make these sorts of decisions unless absolutely necessary, but each case is different with a different set of facts. It might not always be possible to wait until the end of the divorce process and, ultimately it is a decision for the business owner to make.
Can I continue to use the business bank account as I always have done?
Yes, but within reason. Any significant expenditure should be discussed with your spouse and if it is a joint bank account, you might decide to limit your spending from the account and set boundaries in terms of what should and should not be paid from it whilst you go through the divorce process.
If you are concerned that your spouse might unilaterally empty the account, you should look to place a restriction on the account with the bank to ensure that no withdrawals over a certain amount can be made without the written consent of the other.
In summary, it is important to be open and transparent throughout the divorce process and to avoid doing anything which might have a negative impact on the value of the assets to be shared, including business assets. This will generally help to avoid the prospect of contentious, time consuming and expensive litigation.
If you wish to discuss this further please contact our Family team or call 0345 540 5558.