Divorce is never a pleasant topic to have to think about, but it can sadly become an unavoidable reality. Dealing with the division of assets is just one challenging aspect of an already difficult process. For most of us, this is likely to mean cars or property, but what about your business?

Any shares that you own might be treated as an asset, whether you set up the business together, already owned it, or launched a new venture during your marriage. If you’re already going through a tough time, we’ll take you through what it all means, without all the jargon.

Is a limited company considered a matrimonial asset?

According to the law, a matrimonial or marital asset is one which you and your partner acquire during your marriage, or whilst living together before getting married. Even if one of you brings more assets to the marriage than the other, they can still be divided as a marital asset during a divorce.

Although a limited company is legally separate from its owners (the shareholders), the shares they own are still considered assets. It means that any shares you own in a limited company will normally be added to the ‘pot’ when working out a divorce settlement.

 
This will normally be the case no matter which of you started the company or who operates it day-to-day. It may come under particular scrutiny if income from the business contributes to the needs of any dependents (e.g., children), financial obligations, or the standard of living that was maintained during the marriage.

If you owned your limited company before you got married, this might be taken into account, but it’s always worth chatting to a legal professional about this one.
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How is a limited company divided in a divorce settlement?

There’s no straightforward answer to this, and it depends massively on your circumstances, but there are options. This can be a very complex process, so it’s usually best to speak to a legal professional first, and make sure that you’re protected and the division of any assets is treated fairly.

Where the limited company isn’t divided at all

If the limited company is your sole job and form of income, it might not make sense to surrender some or all of it to your spouse. In cases like this, settlement proceedings might consider a process called ‘offsetting’.

Rather than dividing the company, you’ll agree that your partner will receive a different asset instead, such as the family home.

One of you buys the other out, or you sell up

When both parties in the marriage are involved in the business, things can become more complex. You might both have equal shares or directorship status, for instance.

If the divorce is amicable, you may be able to work something out which allows you both to retain your shares and role in the company. Unfortunately, this might not be a practical option, so you could instead decide to offer to buy your ex-partner’s shares, or sell them yours.

You could even sell your shares to a third party, although you may need permission from the other shareholders depending on the terms of any shareholder agreement you have in place. Failing that, you might simply need to sell the business.

It’s useful to get legal advice before making enquiries to try and avoid disagreements about how to value the business and its assets.

Ongoing maintenance payments

Alternatively, you or your spouse might agree to keep the company as it is, but one of you takes ongoing maintenance payments from any future business income whilst stepping back from the day-to-day running. You may be able to claim tax relief on these, although the eligibility criteria rules out anyone born on 6th April 1935 or later.

What are the tax implications of giving away assets?

There isn’t a simple answer to this, and it’s certainly worth talking to a legal professional about what this might mean for divorce proceedings first.

Disposing of assets (where you sell them, give them away, or otherwise swap them for something else of value) can incur Capital Gains Tax if you get more back from the asset than you paid for it.

If the asset belongs to your limited company then disposing of it will be classed as income, so you’ll need to include this in your accounts ready for the Company Tax Return.

As you might imagine, the timing of this can have implications for working out any settlement, so again, speak to your solicitor first!

How can I protect my limited company in a divorce?

As we covered earlier, a limited company cannot be protected from divorce proceedings entirely. This is particularly true if the income you take from it has been used to provide a standard of living during the relationship.

If you already owned the company before getting married, then you might have a prenuptial agreement or even postnuptial agreement in place. In reality, not many people plan their divorce whilst planning the wedding, so this might not have crossed your radar.

If you’re already married and getting ready to set up a company at the moment, it’s certainly worth putting an agreement in place (just be tactful).

Other considerations for protecting your company in a divorce include:

• Whether or not another matrimonial asset, such as the family home, has been used to secure the business or its assets
• Your spouse’s involvement in the business. For instance, do they own shares, or have you appointed them as a director in the company?
• Do either of you rely on the company as your sole source of income?

All is not lost, though, as there are some things you can do to help protect your business and its assets through the settlement process even without a prenup or preliminary damage control.

Find a good divorce lawyer

When it comes to recruiting legal support, it’s essential to do meticulous research. It can feel like a bit of a minefield but it’s worth putting in the time and effort to separate the great from the not-so-great to ensure you’re getting sound advice and fairly charged.

The better options might cost a bit extra, but you’re investing in a higher calibre of experience and skills that you can use to protect your business.

Make sure your bookkeeping and accounts are in order

Where division of finances and assets is concerned, well-organised bookkeeping and accounting is crucial. Without accurate, up-to-date records, you run the risk of prolonging the process and ultimately, not getting the best outcome for you or your business.

Take some time to ensure everything is in order before passing it on to professionals to look at.

Let your accountant help you out

As a business owner, you may well already have an accountant, so it’s worth a chat with them about your situation. Though the legal side of divorce proceedings is best left to your solicitor, an accountant will be able to advise on:

• Your tax liabilities when dividing assets
• Restructuring the business if necessary
• Reframing your business plan
• New debt management strategies
• Planning for retirement
• Outsourcing responsibilities (such as payroll or marketing) if needs be
• Acting as an impartial Power of Attorney or executor on your Will

Learn more about our online accounting services for businesses like yours. Call the team on 020 3355 4047 or get an instant online quote.