Divorcing when business interests are involved

For those who have a business interest, the Court will not accept the approach of The business is mine, it can be sold because it produces an income so let's just push it to one side and disregard it as a matrimonial asset. In most cases, unless you are a sole trader, with no assets of value and little income, this is not an accepted approach. So, for example, if you are a window cleaner and have an old van which is worth less than the car registered in your wife's name, and have nothing but a bucket and cloths, then unless you have an established round and some goodwill that can be valued, the Court will only consider the income stream that is produced from the window cleaning round and if that is to be shared in any way with your wife. At the other end of the scale, if you are a director and shareholder in a PLC, the value of your shareholding is a public record and is easily quantifiable.

In most divorce cases if one or both of you has a business interest the starting point is to establish a value. At its highest, this means a business valuer and/or accountant being instructed, usually jointly by you and your wife, to value the business. Such valuations can be costly and have themselves in case law been referred to as an art rather than a science. There are different basis of valuations and an accountant may carry out a calculation on each of the basis and then cross check them to produce a final result.In many cases it is inappropriate to obtain an expensive report giving the precise valuation of an interest in a private company which will never be sold. Therefore whilst it is sensible to obtain a broad assessment of the value of a shareholding in a company, usually from the company accountant on headed paper, to go beyond this is often not proportionate in terms of cost.

Having obtained a value, the Court then has to decide what to do with it. Sometimes it is sensible to have a commercial solution, re-distributing or re-structuring shares or even continuing to run the business together if a small family company or partnership. A party who withdraws from the business on a daily basis may receive continuing payments of income or payment of lump sum by way of instalments or even postponed payment by way of a percentage of sale proceeds should the business be sold in the future. In some larger asset cases it is possible for a sale of part of the assets of the business, without such a sale adversely affecting the income of the business and its profitability. The tax implications of any lump sum payment to be paid by way of sale of assets of a business must be considered, the tax being on the gain between acquisition and disposal, subject to indexation.

The decision of the Supreme Court in Petrodel v Prest is awaited. This case is about whether or not the family Court is able to pierce the corporate veil, going behind the separate legal entity of a company to enable payments to be made to a wife, in this case by way of transfer of properties owned by that company.The wife argues that her husband has a controlling interest and that the company is therefore a facade for the husband's true wealth. It is felt probable by many that because of the far reaching implications of piercing the corporate veil, that it is more likely than not that the Supreme Court will reject the wife's argument.

Such cases can be costly in terms of legal and accountancy fees and it is therefore strongly advisable to consider alternative means of settlement to the Court process, whether that be solicitor negotiation and round table meetings, mediation, collaborative law or referring a case to a family law arbitrator to make a decision about distribution of assets, income and pensions as a whole, or just on a limited point relating to the business interests.

For more information on any of the issues raised above, contact our Family Law team on 0113 201 4902 or family.law@emsleys.co.uk.