Business assets are assets that are taken into consideration in financial proceedings on divorce and limited companies are no exception.

The court will usually consider a business interest to form part of the financial pot on divorce, and will take the value and/or the income from that source into consideration when dividing the assets between a separating couple. There are arguments that can sometimes be made to attempt to distinguish these assets as “non-matrimonial” in some circumstances such as where the asset was brought to the marriage by one party, but this may not protect them entirely.

So what are your options when settling finances on divorce?

My spouse has no shareholding

If your spouse is not a shareholder (or director or company secretary) then there will be no need for a transfer of shares, or related filings at companies house.

Your shareholding will be valued (see here for how a business is valued) and this will form part of the matrimonial pot. It will therefore be a case of how you can provide your spouse with half of the value of your shareholding – this doesn’t mean you have to give them half of the shares. If there are sufficient assets outside of the company, then you could allow your spouse to take more of those assets, such as the family home, savings, or investments so that you can retain your company. Arguments may also be able to be raised to suggest that the value of the business should be discounted to reflect the risky nature of a business in comparison to non-business assets such as property or cash.

My spouse has shares

If your spouse has shares, it is still possible to agree to off-set other assets against the value of their shareholding, however, your spouse’s shares will need to be transferred.

Who these shares are transferred to will depend on whether there are other shareholders in the company, what the company’s articles of association say and if there is a shareholder’s agreement. A shareholder’s agreement may include restrictions on transfers, such as whether pre-emption rights apply, meaning that the existing shareholders have first refusal. It is therefore important to review these documents to understand what transfers would be possible and whether the articles reflect what the shareholders’ intentions would be in such circumstances.

If you and your spouse are the only shareholders then this should be relatively straightforward for you to buy-out their interest, leaving you as 100% shareholder. However, it may be more tax efficient for the company to buy the shares back from the departing spouse if there are sufficient assets for the company to do so. A company buy-back can be used as a mechanism to extract cash from the business to fund a settlement. Accountancy advice about the best method should therefore be obtained.

Keeping the shares

You and your spouse may both have shares in the company and both wish to retain your respective shareholdings. Whilst this may seem like an easy option, the courts are reluctant to make such orders as it does not allow a clean break between spouses. Even if you are amicable now, it can prove difficult for ex-spouses to work together.

If your spouse is a ‘silent’ shareholder, this still poses its issues. There are some resolutions that can only be passed by the shareholders, and therefore, this comes back to the issue that there would not be a clean break. The ‘silent’ shareholder spouse, as a non-director, may have very limited involvement in the running of the company and would therefore have very limited control in respect of the success of the business. This means there would be no guaranteed income i.e. dividends, or certainty in maintaining a value for their shareholding.

Selling the company

Another option is to sell the company. You will not be forced to do this if other options are viable within a reasonable timescale, however, it may be that there is no other choice. If there are insufficient assets to off-set or buyout your spouse, to realise the value, you may need to consider selling the company. The court can order that shares in a company are sold, but this is not something they routinely do.

Forced to sell?

If you and your spouse can reach an agreement before a final hearing, you will be in control of what you do and don’t agree to during negotiations without anyone ‘forcing’ you to sell your company. Should it be a necessary outcome, this is something you can both agree to without court intervention. Should matters reach a final hearing, then the court could impose an order for sale.

If you have any further questions about selling your limited company due to divorce settlements please do not hesitate to contact our Family Team and we would be happy to help.