Jul 25
Deciding to divorce or ending a civil partnership is never easy, even if the decision is a mutual one. Untangling a shared life with ever changing family dynamics is often complex. It can be even more so if there is a business interest.
The value of the business is treated in a different way from that of a property, cash or savings – which are typically considered to be the “copper bottomed assets”. A share in a business is usually riskier and subject to the mercy of the markets and the business landscape. Add to the complex matrix the difficulty and uncertainty of navigating a divorce and the inherent risks are significantly multiplied. The goose that previously laid the golden egg may not be so forthcoming if it’s future becomes uncertain.
So how can Raworths assist you to resolve financial matters on divorce/dissolution where business assets are involved?
There may be arguments that the business was already operational before the relationship commenced. The best way or protect the value of a business in these circumstances is a prenuptial agreement specifically identifying the business as being a separate and therefore “protected asset” in the event of a divorce.
If the parties are already married however it becomes much more difficult to raise that this asset should be protected from a potential matrimonial claim and a brave soul who raises it with their spouse!
Think about this event when you are creating the companies constitutional documents. Include provisions about what will happen in the event of a future divorce such as pre-emption rights of transfer, different classes of shares with voting and non-voting rights or provision that spouses are not entitled to receive shares on divorce. The court will not ignore the business as an asset but it may make the court far less inclined to interfere with the shareholdings.
The business/shareholding will need to be given a value. This will involve a valuation of shareholdings, liquidity of resources, minority interests, and tax. It is important to identify what, if any, proportion of the value could be attributable to the pre-marriage period and thus be identified as “non-matrimonial”.
Where there is a lot of goodwill and trust between the parties and their professional accountants this can offer a cost effective solution to ascertaining a realistic value. They know the business inside and out and can get to grips quickly with the figures. In most cases, however, an independent forensic accountant is needed to provide a balanced view completely independent of both parties and any implied influence.
Even if it can be established that a proportion of the business is non-matrimonial it is not “ring fenced” but considered when looking at what is “fair” and what is required to meet the parties’ financial needs. These kind of arguments can assist in moving away from what otherwise might be an equal share.
Whilst the courts attempt to avoid selling a business, a sale may be required if there is no other way to achieve a fair outcome. In 2001 a judge made it very clear that there remain circumstances where “the goose might have to go to market for sale”. This remains quite rare and there will usually be the opportunity to buy out the other’s interest
The Court has the power to order the transfer of shares in a limited company from one party to the other. This might be appropriate where a family business is co-owned and only one of the parties will continue to run the business. The courts are conscious about the impact of this on third parties who own shares in the business and a great deal will depend upon that third party agreement and/or the articles of association.
Where the relationship between the parties is difficult, the ongoing and continued involvement of them both in the business may undermine its successful running or its agility for making time critical decisions. In these circumstances, both parties retaining their shareholding should be avoided wherever possible. The court has a duty to achieve a clean break between the parties as soon as possible and providing a potential platform for conflict is a relevant factor in the complex matrix of a financial settlement.
Where both parties will remain involved it is then crucial to consider how the business will continue to run including voting rights, an active part in decision making and “drag and tag” clauses in the event of an ultimate sale.
In most cases the shares are more of a priority to one of the parties than the other and, in that event, and subject to liquidity, it may be that the parties can agree to buy out the others interest in those shares or “off set” the value against the other matrimonial assets. One person’s goose will be another’s family home!
Care must be taken to ensure that appropriate weight is given to each of the types of assets to ensure that it not only meets their priorities but also and, most importantly, their financial needs as they move forward to their next chapter independently from one another.
Carmelita Ardren is Head of Family Law at Raworths based in Harrogate, North Yorkshire. Carmelita is ranked in both Chambers UK and the Legal 500, independent guides to the legal profession. She can be contacted on 10423 566 666 or email carmelita.ardren@raworths.co.uk
Published on 17 July 2025
The information and any commentary contained in this briefing is for general information purposes only and does not constitute legal or any other type of professional advice.
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