Divorce & owning a business: What am I entitled to?

Divorce, especially when a business is involved, is rarely simple. You might be someone who started and grew a company from scratch, a shareholder in a family firm, or your ex-partner has a company but you had no formal involvement in the business at all. Perhaps the business existed before your relationship – or maybe you built it together.

Whatever your involvement, the business is likely to form part of your financial settlement and this raises important questions.

● What is the business worth?

● What am I entitled to?

● How can we reach a fair outcome without putting the company at risk?

In this article, we discuss how businesses are treated when a relationship ends and what non-business-owning spouses may be entitled to. Whether you are concerned about your financial future or just want to understand your position, this is a good place to start.

Divorce and business interests

If you are going through a separation and a business is involved, whether it’s yours, your spouse’s, or something you built together, you are not alone. A significant proportion of relationships today end in divorce or dissolution and with millions of people involved in small and medium-sized enterprises (SMEs), business interests often form part of the picture.

According to the Department of Business and Trade, in the last quarter of 2024, there were 5.5 million private sector businesses in the UK, the majority of which were SMEs. These businesses play a vital role in our economy, employing approximately 60% of the UK’s workforce.

A business often represents more than just financial value. It can reflect years of dedication, sacrifice, and personal identity. This emotional investment can make it hard for divorcing spouses to approach negotiations with objectivity. Add to that the practical challenge of separating personal finances from business interests and it becomes clear why careful and sensitive handling is essential.

Balancing fairness and business interests

In England and Wales, fairness is the starting point for negotiating a Financial Settlement and business assets are no exception. The courts consider the needs, resources, and contributions of both spouses, and will assess whether a business should be considered a matrimonial asset. Considerations include:

● when the business was established

● whether it increased in value during the marriage

● the level of involvement by each spouse

● how central it is to the family’s finances

Not every business will be treated the same, but it will usually be considered part of the financial settlement if it formed part of your economic partnership during your relationship.

Business valuation

When a business is considered a matrimonial asset, the business must be valued before a financial settlement can be negotiated. This process can be both complex and costly, often requiring the expertise of a forensic accountant.

A robust valuation will consider the business’s:

● assets and liabilities (including tax and business risks)

● liquidity (how easily assets can be converted into cash)

● past trading history

● current income

● prospects for growth and future earning potential

How business type and structure affect valuation

The way a business is structured in terms of its assets and income streams will affect how it is valued.

Broadly speaking, there are three main types of businesses:

1. Asset-based businesses
These include property investment companies or businesses that hold significant physical assets such as vehicles or premises. The valuer will review the balance sheet and determine a net asset value. This figure will account for any taxes due if the assets were to be sold, such as Capital Gains Tax (CGT).

2. Income stream businesses
These businesses generate income primarily through the owner’s personal skills or services. In these cases, there may be few tangible assets or a resale value. Instead, the valuer will focus on the income stream, particularly profitability and annual income, as these figures often form the basis for spousal or child maintenance calculations.

3. Trading businesses
For businesses with ongoing operations, like a shop, manufacturer, or larger service provider, the valuer may assess the ‘annual maintainable earnings’ and apply a price/earnings ratio. These earnings are not only considered for the overall valuation but may also influence future maintenance arrangements.

The way the business is owned may further complicate valuations:

Partnerships

Your business may be jointly owned by two or more people, either through a formal shareholder agreement or a more informal arrangement. In family-run businesses, things can get particularly complicated, especially when multiple family members are involved, making questions around ownership and valuation less straightforward.

Limited companies

A limited company is a separate legal entity from its owners, but each spouse’s shareholding will still need to be assessed. Even minority shares must be considered, though their value may be discounted.

Because business structures and circumstances can vary so much, it’s important to get specialist advice early on. An experienced family lawyer can help you choose the right valuation expert from the outset, saving time and money.

Money Helper also provides helpful impartial advice about Dividing Business Interests during Divorce and Dissolution.

In High Net Worth Divorces, things can get even more complex. You may have multiple business interests, significant wealth, or intricate asset structures that require a more tailored approach. Expert legal and financial advice is essential to ensure a fair and lasting outcome, especially when specialist valuations, tax planning and long-term financial strategies are involved.

You can find out more in our article What you Need to Know in High Net Worth Divorce Cases.

What might the non-business-owning spouse be entitled to?

Courts in England and Wales aim to meet both parties’ needs, typically preserving any businesses involved; ordering the sale of a business is rare. In most cases, the business remains with the owning spouse and the other receives a fair share of the overall marital pot by the redistribution of other assets. The non-owning spouse may be entitled to a share of the business’s value, either directly or through other assets.

There are numerous ways to share business assets, including:

● buying the other person out (which could require you to liquidate assets, or wind up or sell a business)

● taking out a business loan to buy out the other spouse and protect the company

● splitting ownership (which may lead to conflict if both of you retain shares)

Alternatively, one spouse may be offered maintenance payments if the business is the main source of household income.

Common challenges and considerations

Documentation and disclosure

A key requirement is full financial disclosure of:

● Company accounts

● Management accounts

● Asset registers

● Loan and liability records

● Tax documents

Missing or unclear financial records can slow down the process and damage trust between parties. If the court suspects that assets are being hidden or undervalued, it could result in negative conclusions. If there is a risk of assets being sold or moved out of reach, your solicitor might recommend that you apply for a ‘Freezing Order.’

Liquidity

Even if a business is valuable on paper, it may not have the available cash to support a lump sum settlement. This is known as being illiquid. Courts recognise this and are reluctant to make orders that would jeopardise a company’s future.

Risk and valuation disputes

The business’s risk profile can present a challenge. A high-risk venture in an unstable market may be valued less generously than a stable, long-established firm. Additionally, different experts can offer widely varying assessments of a business’s value, especially when future earnings and goodwill are involved. Having clear, professional input is essential to avoid costly disputes.

Shared ownership and separation of interests

When both spouses own shares in the same company, the court will seek to achieve a clean financial break. This often means transferring one person’s shares to the other, particularly if only one of you is actively involved in running the business.

While this is a practical solution, it can have unintended financial consequences. Transferring ownership can affect CGT and the overall income drawn from the business, but CGT is usually not triggered in divorce, unless company shares are in an investment or property company.

The reallocation of income to one party may also lead to a higher tax bill. The use of personal allowances may affect your Income Tax Rate and can also reduce the overall net income available to support two separate households. It’s clear that tax and income implications must be carefully considered to avoid an unsustainable or unfair outcome.

Steps towards a fair outcome

Aaron O’Malley is a solicitor based at K J Smith’s Guildford office. With a particular strength in cases involving business ownership and complex financial arrangements, Aaron helps clients navigate the tricky terrain of divorce with clarity and confidence.

“Although these issues may sound complicated, I think it is important to consider things holistically and what outcome will be most appropriate or reasonably foreseeable for you, as you can then work out how much scrutiny and disclosure is required.

It is not uncommon for one spouse to have less knowledge about the business but it certainly is a priority when considering who gets what at the end of the day. It is also not unusual for separation to involve considerable mistrust which is sometimes unjustified, so it is important to get a second opinion to confirm whether your fears are right or not. There is no point spending a fool’s ransom chasing a white elephant though it is essential to understand the value of the goose that lays (and is likely to continue laying) the golden egg.

As with most of our legal considerations, we must first stand back and look at the bigger picture before deciding how forensic we should be as the costs of the exercise need to be weighed up against the benefit which might be achieved form the expense”.

If you own a business, Aaron advises that – whilst separation may be the last thing on your mind – it’s worth being proactive to protect your business interests. Aaron can advise upon Prenuptial and Postnuptial Agreements, or the use of Trusts, tailored to your personal and commercial circumstances.

If you are currently going through a divorce or dissolution, you can take the following steps to protect your interests and prepare for a smoother process:

● Seek early legal advice and explore Alternative Dispute Resolution (ADR) options such as Mediation or Collaborative Law. These methods can help you reach a fair settlement more quickly and with less conflict.

● Start gathering documentation related to the business, including records of assets, income, debts and liabilities. Being organised from the outset allows your solicitor to plan strategically and provide a clearer picture of your financial future.

● Ask about the timing and type of valuation needed. Your solicitor can help you instruct a valuation expert with specific experience in divorce and SME assessment – crucial for ensuring an accurate valuation.

Securing your future after divorce

Separating from a partner is never easy, but with careful planning, open communication and the correct legal support, business assets can be safeguarded and remain stable throughout proceedings. The key is to act early.

At K J Smith Solicitors, we understand the emotional and practical complexities of separation when you own a business. We can help you to determine if a valuation is necessary, instruct the experts, and approach negotiations constructively.

We will help you to strategically plan for your future so that you can understand what it may look like for you and your business. We offer a free 45-minute consultation to discuss your options, helping you protect what matters most. Whether you are a business owner or married to one, we are here to guide you every step of the way.