Dealing With Business Structures In Divorce

Dealing With business Structures In Divorce

by Charlotte Perry, Knights Professional Services

As we know, separation / divorce can be one of the most emotionally charged and financially complex experiences a couple may face. This complexity is amplified when either party has interests in a business – whether it’s a privately held company, a shareholding, or a jointly owned enterprise.

As a family lawyer, I often help clients navigate the intersection of family breakdown and business structures. Here’s what you need to know if you or your spouse has business interests, and how to approach these during divorce proceedings.

Understanding the business landscape

When a spouse (or both) is involved in a business, that business interest typically forms part of the matrimonial pot. Whether it’s a directorship, partnership, or shareholding, it’s vital to understand the legal structure, ownership documents, and any shareholder agreements that might govern that interest.

In some cases, both spouses are directors or shareholders in the same business. In others, one spouse may have an interest in a business the other has had little involvement with. Each scenario requires careful analysis, as the approach to valuation and division will differ.

Obtaining a valuation

Determining the value of a business interest can be one of the most contentious and complicated parts of a divorce. It often requires expert input from a forensic accountant or business valuer.

Key questions to consider include:

• What is the structure of the business? Is it a limited company, partnership, LLP, or something else?
• What are the ownership interests? Are there different classes of shares?
• Is there a shareholder agreement or partnership agreement that restricts transfer or sale of shares?
• How is income derived from the business? Is it salary, dividends, or both

Valuation experts typically consider assets, liabilities, profitability, and sometimes goodwill. In smaller businesses, especially those heavily reliant on one spouse’s input (like consulting firms), this can be especially tricky.

Jointly owned businesses

When spouses co-own a business, tensions can run high. Both parties might want to remain involved, or one might wish to buy the other out, or one believes the other should walk away because they didn’t really play a role in the business – it is crucial to:

Consider the future viability of working together — is it realistic?

Review shareholder or partnership agreements to understand exit mechanisms and restrictions.

Plan for governance during divorce – clear boundaries and communication protocols are essential to keep the business functioning during negotiations. This is extremely important!

In many cases, a clean break is advisable, but that’s not always practical or possible. Alternative solutions – such as staggered buyouts or third-party investment can be explored with the right legal and financial advice.

First steps

1. Gather all relevant business documents early – accounts, shareholder agreements, partnership deeds, and articles of association.
2. Seek specialist valuation advice to ensure fairness and accuracy.
3. Prioritise open and honest financial disclosure – failing to do so can damage credibility and prolong litigation.
4. Keep an eye on the bigger picture: sometimes the cost of litigation can exceed the value of the issue in dispute.

Divorces involving complex business structures require a collaborative approach between family lawyers, financial experts, and sometimes corporate lawyers. Each case is unique, and the right strategy will depend on the specific circumstances of the business and the needs of the family.

If you’re going through a divorce and you or your spouse has business interests, early expert advice is key.

Here at Knights we have specialist Family, Corporate and Litigations teams that work together to provide clients with the right level of advice and support, all in house and seamlessly.