The Family Business on Divorce

A family business is a family asset, and as such will fall into the ‘pot’ for division on divorce. At one time the courts were reluctant to order a sale of a business. If the business produced  income needed by the parties, they would try to leave it intact in the ownership of one of the spouses and compensate the other partner in some other way for their share in the value of the business. This way one of the spouses would retain the business and payoff the other spouse in some other way.

This is not now necessarily the case. The courts have shown themselves more willing to divide up a business and distribute it alongside the bank accounts, property and all other assets. As a judge has said:

‘The taboos against selling the goose that lays the golden egg have been laid to rest. Nowadays the goose may well have to go to market for sale.’

When a business is under threat of being sold, the first step must be to determine its value. This is likely to require the specialist help of an accountant and valuer. It is however near impossible in most cases to value a business without the person running it. The value must take into account the structure of the business, its assets and liabilities, and reach a figure based upon dividends available and liquidity.

If a business is to be retained and not sold a decision must  be reached as to whether the other spouse is to retain any role in the business. It will not usually be wise or possible for the spouses to continue working together, but an administrative role for one could be a possibility. This would produce needed income for the spouse who would no longer be involved in the management of the business but would have much experience to offer.

In most cases where a business is involved in divorce proceedings, legal advice should be taken at an early stage.

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