If you and your divorcing spouse are joint directors of a limited company, there are a number of issues you will need to consider. One of the biggest concerns is whether or not your company will be perceived as one of your matrimonial, or non-matrimonial assets. We explore what you need to know if you co-own your company equally with a spouse you’re getting divorced from.
What is a matrimonial asset?
In all divorces, there are matrimonial assets to value and divide during a financial settlement. These are assets that are considered ‘joint ‘by the courts and as such will be split when you part ways. Your marital home, pensions, investments and other financial assets and interests will usually be considered in the matrimonial pot too. Assets will not always be split 50/50 as your unique financial circumstances will be taken into account. A non-matrimonial asset is an asset that cannot be divided during a divorce, e.g. inheritance, or assets that were owned before you were married.
Is a limited company a financial asset in a divorce?
Generally speaking, yes, your limited company will be viewed as a matrimonial asset when you divorce. Because your company provided an income that was brought into the marriage, and an accompanying standard of living for you and your spouse, even if you set up the business before you got married, it will likely be considered as a divisible asset in proceedings.
Protecting your Limited Company from divorce
One of the most useful ways of protecting your company from a divorce is to draw up a prenuptial agreement between you and your spouse. Within this agreement, you should outline accurately what will happen to the company if you are and your partner were to separate. If you are already married then a postnuptial agreement provides a similar kind of protection.
Options for your limited company when divorcing
- Buy out your spouse
When both parties have 50/50 shares in the company, they can opt for one of them to buy the other out. This helps the buyer maintain full control of the company. Payment can be offered in the form of a lump sum or by making regular instalments to the other party.
- Sell your limited company
Selling a limited company to an outside party and dividing the profits of the sale is another option. The business will need to be valued by an accredited third-party valuer or broker who will consider aspects such as the sale price of similar companies, and the financial health of the business. Business sales can take some time, so both spouses will need to decide on how the business is run in the interim.
- Offset against other matrimonial assets
Offsetting means that if there are other financial assets involved in your divorce, you can use these to offset your continued retention of the business. For example, in exchange for a share of your pension, or the family home, you retain control of the company.
- Jointly run the business
In some cases, and depending on the nature of the company, it’s possible to carry on managing the business jointly, but instances where this is successful are rare. Creating a new shareholder agreement can help ensure the continued and effective running of the company but this can become complex. Often it can work better if spouses agree for one of them to manage the business, while the other has a portion of the company’s profits until it has been sold.
In all cases, taking action early on is advisable and finding the specific advice you need from a family lawyer experienced in financial settlements involving businesses is also recommended. If you and your spouse are able and willing to come to a joint and fair agreement on what happens to your company, you are more likely to save on legal costs and time.
