Limited Companies in the Event of Divorce

Divorce is difficult for everyone. If you are the owner of a limited company, you may have particular worries: will your company survive? Will you have to sell? Is your livelihood at risk?

Well, the short answer is (as in many aspects of family law): it depends.

Limited Companies and Divorce

Your limited company could be matrimonial (it was acquired/built up during the marriage) so susceptible to “sharing”, or non-matrimonial (it was acquired prior to the marriage/following separation or was acquired by way of a gift/inheritance) so could be “ring-fenced” depending on other assets and resources, or a combination of the two. It will depend on your particular circumstances and how the family finances have been run during the marriage. There is no straightforward answer, but it is likely that the business will be a major issue.

Valuing your Limited Company

If you cannot reach agreement with your spouse then there may need to be a professional valuation undertaken.  

The value in many family run/single-person limited companies is the owner’s expertise, contacts and reputation – they are the business. The main value they have is the income stream generated and without that “key person” there really isn’t any value.  In this situation, any valuation is going to be limited in scope and will focus on the income that can be achieved.

In companies where there are premises and equipment, a more detailed valuation is likely to be needed. It could involve other experts/reports such as commercial property valuations being necessary as much of a company’s  value can be in its assets.

A business valuation will usually be performed by a single joint expert acting on behalf of both parties; if not agreed it is likely to be ordered by the court. There are three main factors to consider:

1. assets;
2. cash flow; and
3. analysis of comparative models.

Dividing a Business in a Divorce

There are various options as to how the company will be dealt with upon divorce:

• “Buy” your spouse out of their interest.
• Offset your interests in other assets (for example, the former family home) so you can retain the company.
• If the company has an income stream but has no capital value you could pay spousal maintenance.
• You could sell the company and split the net sale proceeds with your spouse.

How to Protect a Limited Company in the Event of Divorce

A pre or post nuptial agreement can assist you if you would like to address how the company will be dealt with upon a divorce. Many couples are entering into marital agreements to safeguard business interests. Especially when there is a family business that may have been in existence for many generations or a start-up company with stellar aspirations!

Our family law practitioners at Charles Russell Speechlys LLP specialise in divorces involving complex company assets, and providing advice on nuptial agreements.