Divorce & The Family Business

A divorce can be traumatic but when a divorce occurs in a farming family, it can be particularly tough when the farm is not only the family business but also the family home. In my experience as a family finance and divorce solicitor in Whitefield and Cheshire it is not uncommon for spouses to stay in unhappy relationships for fear of separating and the consequences on the family farm. Some may question why divorce and a family farm are different to any other type of divorce. After all every divorce can be painful. However, with divorce and the family farm, often the farm has been in the family for generations. There is therefore great sentimental attachment to the farmhouse and land. Not only that, the farm is normally both the family home and the source of income for all the family, including extended family. Adding to the complexities, the farm or some of the land could be owned by the older generation or parents may be paid an income out of farm profits as a means of providing a pension after they have transferred ownership of the family farm to a son or daughter. Therefore, where do you start when facing the prospect of a divorce and sorting out what happens with the family farm. In an ideal world, a farming family takes advice before handing over ownership of the family farm to a son or daughter. Often a farming family is told by a private client solicitor that it is tax efficient to transfer ownership of the farm to the younger generation to minimise the payment of inheritance tax. That is all very well but unless specialist family legal advice is taken the family may be reducing the risk of paying a big inheritance tax bill but exposing the family farm to divorce claims. Some farmers think that if the family farm has been gifted or inherited it will automatically be ring-fenced from any financial claims on divorce. That is not the case. Even if an asset is: Owned in the sole name of one spouse; and Was owned by the spouse prior to the marriage ;and Has been in the family ownership for a long time Divorce financial claims can be made against the asset. In a farming family, the asset in question is normally the farm and land. When a couple get divorced all the assets they own, individually or jointly, are taken into account when negotiating a financial settlement or the court makes a financial court order. Although the court will factor in the relevance of a family farm having been inherited or gifted by a husband or wife the court has to look at the husband and wife's needs and, most importantly, the needs of any children. Prenuptial Agreements and the Family Farm If a family own a farm and want to leave it as a legacy or gift to a son or daughter the best option to protect the family farm from divorce claims is for prenuptial agreements to be signed at the time of any marriage. Although the prenuptial agreement can try to ring-fence the family farm from any financial claims in divorce, whether or not the prenuptial agreement will work fully depends on the family needs at the time of the divorce and the availability of other assets to meet divorce financial claims. In any family situation involving a family farm, divorce solicitors recommend legal advice is taken on the benefits and potential disadvantages of a gift or transfer before the family farm is transferred to a son or daughter. Advice can then be taken on the option of a prenuptial agreement or, if they are already married a post nuptial agreement . Divorce and the Family Farm If you are getting divorced and one of you owns a family farm then it is particularly important that both husband and wife get expert legal advice from specialist divorce and family finance solicitors. It is likely to be the case that the farm owner wants to keep the farm and the spouse that does not own the farm wants it to be sold to raise money to buy a house to rehome him or her. There may be mention of the land’s increased value if farm buildings or land could potentially get outline planning permission so it can be developed for housing. In any divorce and financial proceedings, assets need to be valued. That applies just as much when the asset is a family farm. A specialist valuation will be needed to look at the value of the farm and land as well as any ‘’hope’’ value in relation to planning permission and development opportunities or the sale of part of the acreage. In addition, the value of the farm asset will depend on the income produced. [related_posts] If a farm is owned in the sole name of a husband or wife (rather than ownership being shared with parents and siblings) then it may be possible to sell part of the land or a farm building or to raise capital by mortgage to meet a husband or wife's divorce financial claims. When it comes to a family farm and divorce, the court may view the family farm as a non-matrimonial asset and hence will not say that the value should be shared equally between the husband and wife. However, the bottom line is that a husband or wife may get an award that affects the family farm if it is the only way that their housing and other needs can be met. When a divorce solicitor is giving legal advice to either a farmer or their spouse the aim is to achieve a financial solution that provides a home for the husband, wife, and children and ideally does not affect the continued viability of the working farm. This can require creative resolutions to secure the family farm for future generations. For help with divorce and financial claims or prenuptial or postnuptial agreements please contact our expert family lawyers

When you are divorcing and you or your spouse runs a business or has shares in a family firm, you need to know if the business is relevant to the divorce settlement and how it will be valued. Our North West divorce solicitors specialise in negotiating financial settlements where one or both spouses own a family business. In this blog, we answer your questions on business assets in divorce proceedings and how you value company shares in divorce. For expert family law advice, call our team of specialist divorce lawyers or complete our online enquiry form. Your frequently asked questions on business assets in divorce proceedings   Divorcing couples ask these questions when they or their spouse has business assets: Can the divorce court decide what happens to a business? Will company law and the shareholder agreement determine what happens to the shares in a family business? Are business assets relevant to divorce proceedings? How are businesses valued in divorce proceedings? Can the company accountant value the business in divorce proceedings? Is the book value of a business an acceptable valuation of a business asset in divorce proceedings? How are minority interests in family companies valued in divorce proceedings? What is the relevant date to value a company shareholding? Can a shareholder in a family business be forced to sell their shares as part of a financial court order? What happens to a family business when both spouses are shareholders in a family business?  At Evolve Family Law, our family lawyers can answer all your business-related financial settlement questions, whether you own a family business or are married to someone who is either a sole trader, in partnership or a majority or minority shareholder in a family business. Can the divorce court decide what happens to a business? The divorce court can decide what happens to business assets in a divorce. The court will consider: Is the business a family asset? What is the value of the business? What is a fair financial settlement? If the spouse’s shareholding is not classed as a family asset, the court will only include it in the financial court order if necessary to meet the needs of a spouse. If a spouse’s reasonable needs can be met without reference to the business asset, its value will be ignored. In divorce proceedings concerning a family business, the judge can order: The spouse who owns the business asset retains it as part of their share of the family wealth. The shares in a family company are sold, and the sale proceeds are divided in the proportions ordered by the judge. The shares in the family company are transferred from one spouse to the other.  If one spouse is the only one actively involved in the family business, the court will normally order that the spouse retain ownership of their shares. However, the other spouse may receive all the equity in the family home, a lump sum payment, spousal maintenance, or a combination of these. If one spouse is a minority shareholder and the other a majority shareholder, the court may order the minority shareholder to transfer their shares in the company to their spouse. If the divorcing couple can still work together in the business and want to continue joint ownership, the court could leave both spouses with shares in the company. This scenario is unusual unless the couple asks the divorce court to make an agreed financial consent order. Will company law and the shareholder agreement determine what happens to the shares in a family business? Spouses sometimes assume that the divorce court lacks jurisdiction to decide what happens to a business in divorce proceedings. For example, if a husband and wife are the major and minor shareholders in a company and are in a shareholder dispute. Logically, you would assume that the dispute is a matter of corporate law. It is and it isn't. If one spouse starts proceedings in the commercial court under the Companies Act 2006, the judge has jurisdiction to resolve the corporate dispute.  However, if the husband or wife initiates financial proceedings because they cannot reach a divorce settlement, the family court has wide-ranging discretion to make orders, including orders over business assets. Therefore, it wastes time and money for a shareholder dispute between a divorcing husband and wife to be litigated first in the commercial court using corporate law principles when the family court can decide how to divide assets, including the business, using the principles contained in Section 25 of the Matrimonial Causes Act 1973. Are business assets relevant to divorce proceedings? Business assets are relevant to divorce proceedings. The judge will decide if they are: A matrimonial or family asset, or A non-matrimonial or non-family asset. If deemed a family asset, the business is relevant to the divorce settlement. If it is classed as a non-matrimonial asset, its value could be considered if it is necessary to do so to meet the reasonable needs of the spouse who does not own the business. How are businesses valued in divorce proceedings? Business assets must be disclosed as part of the Form E financial disclosure process. In Form E, a spouse is asked to value their business and other assets. The other spouse may agree on the valuation. If so, an accountant doesn’t need to carry out a valuation. A business valuation may be agreed in scenarios such as: The spouse works freelance and their earnings are paid into their company account. There are no valuable business assets and no goodwill value. The business is valued at the amount of cash in the bank. The husband and wife are shareholders in a company, and an offer for purchase has been accepted from a third party unconnected to either spouse. In other situations, the court may be asked to order an independent valuation of a sole trader's business, a partnership interest, or a company shareholding. The court typically orders the instruction of a forensic joint accountant as a single joint expert. Both parties instruct the expert and agree to the terms of the letter of instruction. The court will typically specify the scope of the expert's report, for example, whether the expert is to assess company liquidity in addition to providing a valuation. Can the company accountant value the business in divorce proceedings? A company accountant can provide the Form E value for the business. If additional information is necessary, the court may be persuaded that a detailed valuation by the company accountant is more appropriate than the instruction of a forensic accountant with no prior knowledge of the business. The approach taken by the court will depend on the size and structure of the company, as well as the representations made on behalf of both spouses. For example, one spouse may claim that the majority shareholder heavily influences the company's accountants. You might also be interested in [relate_posts] Is the book value of a business an acceptable valuation of a business asset in divorce proceedings? The book value of a business can be an acceptable valuation for certain types of small businesses, such as a company set up by a freelancer to channel their income through, and the business has no goodwill value or significant assets. A divorce solicitor can explain the valuation options and why you may need a more detailed valuation of your spouse’s shareholding or partnership interest. How are minority interests in family companies valued in divorce proceedings? If a spouse is a minority shareholder in a family business, special consideration needs to be given to the value of the shares. The shares may not be attractive to a third party, who would be buying shares in a business where they have no control or power to veto.  The professional conducting the valuation will generally apply a discount to a minority shareholding, depending on the percentage shareholding and the degree of control, if any, the minority shareholder has. The value of a minority shareholding should be examined carefully. For example, minority shareholding may not be heavily discounted in a company with significant cash reserves. What is the relevant date to value a company shareholding? Sometimes, spouses and their lawyers argue about the date to be used for valuing the shares in a company, as the fairness of the financial settlement may depend on the valuation date. For example, a forensic accountant may be asked to value company shares at: The date of separation, and The date of cohabitation or marriage, and The date the company shares were transferred or gifted to a husband or wife. The importance of business asset valuation dates was explored in the Court of Appeal case of Martin v Martin (Rev 1) [2018] EWCA Civ 2866. The Martin case illustrates the complexity of valuing shares in a non-listed company. A high court judge awarded Mrs Martin 40% of the 182 million family fortune. Mrs Martin appealed, saying she should have got 50%. Mr Martin counter-appealed, arguing that his ex-wife should have received less than 40% of the assets. The crux of the appeal was the relevance of the value of Mr Martin's shares when the couple began to live together. The court concluded that it was fair to assess the value of the shares at the date of cohabitation and, therefore, ringfence the value of the husband's pre-marriage-acquired shares. This resulted in Mrs Martin receiving 40% rather than an equal division of the family assets. The court said that a financial settlement ‘’ involves a holistic, necessarily retrospective, appraisal of all the facts and then the application of a subjective conception of fairness, overlaid by a legal analysis.’’ That subjective approach makes it even more critical for spouses to seek early specialist legal advice from divorce solicitors experienced in divorces involving family businesses and in assessing what a court is likely to determine as a fair financial settlement. Consult Evolve Family Law for advice on divorce and business assets The specialist divorce lawyers, led by Robin Charrot, have substantial experience representing spouses, civil partners, business owners and non-business owners in financial proceedings involving businesses ranging from SMEs to listed companies. With many years of experience advising on business assets in divorce, our team is well-equipped to hone in on the key aspects. That could be tracing vital financial disclosure, analysing company accounts or instructing a shadow accountant to assess the relevance of the transfer of business assets into a SIPP pension and leaseback at an overvalue to the company, impacting company profitability at the time of the divorce proceedings, or spotting unusual movements or discrepancies in director loan accounts. Alternatively, when acting for a majority shareholder, it could be robustly arguing against fishing expeditions for excessive financial disclosure or arguing for the instruction of the single joint expert to be limited to current issues rather than their remit extending to a historical trawl of company transactions. At Evolve, we combine expertise with a personal touch, providing strategic advice tailored to your family and business circumstances, as well as robust court representation. For expert family law advice, call our team of specialist divorce lawyers or complete our online enquiry form.

As a divorce solicitor specialising in resolving financial settlements, I spend a lot of time looking at business assets within financial court proceedings when it comes to family business and divorce. Many people assume that if they split up from their spouse that their business assets are ring fenced and won't form part of the financial settlement. That isn’t the case. As part of the divorce proceedings the court can order the valuation of a business and order the sale or transfer of company shares, or it can force the company to come up with money to fund a settlement. It is therefore important to get specialist advice from a Manchester divorce solicitor on business assets within divorce proceedings. Tips for family business and divorce: Assign a correct value to the entire family business on divorce. Should the business value be net assets, and if so, are the assets valued correctly in the business accounts? Or should the valuation be a multiple of profit, in which case is the profit over or under-stated in the accounts, and what is the correct multiple? Should the opinion of the business’s accountants be relied upon, or does an independent accountant need to be brought in; Find out how to assess the value of a spouse’s shares in the family business on divorce. This is particularly difficult if they are a minority shareholder, or where other family members hold the other shares; A spouse who was a ‘sleeping partner’ in the business during the marriage, in order to maximise tax advantages, may suddenly ‘wake up’ on divorce and attempt to interfere with the running of the company, or challenge past transactions; Where a spouse is also an employee of the family business the spouse has rights and claims as an employee, as well as potential spousal maintenance claims; Any dispute between spouses over a family business tends to unsettle the other directors, shareholders and employees of the business, and could even destroy the business itself; What is the right solution to the spouse’s claims against the business? Should they get shares, or cash? If cash is preferred, how can it be released from the family business on divorce (there are many ways) and the tax treatment of each method needs to be weighed up. [related_posts] Family Business Protection and Divorce  When a husband and wife agree to separate but want to continue to operate the family business together, it is vital that this agreement is properly documented to avoid disputes and to minimise the risk of a future falling out. Protection can be in the form of written employment contracts, a shareholder agreement and a family financial court order. These documents provide checks and balances, such as recording the agreed policy on declaring dividends or the policy on employing new staff ensuring both spouses have legal protection. With these documents in place, many spouses are able to successfully work together even if they can't continue to live together. Prenuptial Agreements and Protecting the Family Business on Divorce   As a Manchester divorce solicitor, I am often consulted by business owners where they (or one of the other shareholders) are getting married, and they want to protect the business from the kind of risk and uncertainty which any divorce would create. A prenuptial (or postnuptial agreement if a couple are already married ) can sometimes be the perfect solution, as prenuptial and postnuptial agreements can potentially ring-fence the business completely from claims on divorce, or if this is not possible, the prenuptial agreement or postnuptial agreement can have a number of provisions which protect the family business on divorce. When it comes to the business of divorce it pays to get the right help from a qualified and experienced divorce solicitors like Evolve Family Law.