A limited company is not automatically protected from a divorce financial settlement, meaning that your spouse may be able to claim a portion of its value. This will depend on when the company was established, the share of each party in the business, whether marital funds have been invested in the business, and who has been involved in the day-to-day running of the business. It is important to understand that the division of assets following divorce, including a limited company, will not necessarily be 50:50, as the court aims for a fair split based on the broader circumstances of each case. If you are concerned that you may lose some or all of your shareholding in your limited company as part of a divorce financial settlement, please speak to one of our expert divorce law solicitors, who can advise you based on the circumstances of your case and provide the representative you need.
Considerations for dividing a limited company in a divorce
A limited company will normally be considered a matrimonial asset if it was incorporated after a marriage or civil partnership. Where a company was incorporated before the marriage or civil partnership, it may still be considered a matrimonial asset if the income from the business was used by the couple and their family once married.
To determine if a limited company should be divided or not, as part of a divorce financial settlement, the courts will typically look at:
- Who owns the business (sole ownership by one spouse, equal limited company directorship.)
- Whether the business was incorporated before or after a marriage
- The involvement of the other spouse in the running of the business
- The value of the shares, based on company financial accounts, and
- How easy will it be to extract capital from the business to divide among ex-spouses
How is a business divided in a divorce
Where a limited company is to be divided as part of a divorce financial settlement, this does not necessarily mean that the business must be split up and shared between both parties. Instead of dividing the business, the courts will normally try to avoid any disruption and consider other options, such as offsetting the value of the business with other assets in the matrimonial pot.
If your business is to be treated as a marital asset during the divorce process, the first step is to get an accurate business valuation. The amount that you and your ex-partner can get from your limited company will depend on the valuation and a range of factors.
There are several other ways that a business can be included in a settlement, including:
- The payment of a lump sum compensation payment by one party to the other
- Ongoing maintenance payments by one party to the other
- The court orders that shares be transferred to one spouse or
- The court orders that the business or shares should be sold.
It is important to seek a final financial divorce settlement from the court to ensure that your ex-spouse cannot make a financial claim against the limited company in the future. It is advisable to seek the advice of a divorce lawyer to understand your legal position situation and explore possible options available to you to protect your interests.
Protecting a limited company in a divorce
There are a number of ways that you can protect your interests in your limited company in the event of divorce, including:
- Prenuptial or postnuptial agreement
- Reinvest business profits into the business
- Avoid using marital assets to secure/invest in the business
- Avoid the involvement of your spouse in the business
- Shareholders/Partnership agreement
Prenuptial or postnuptial agreement
By proactively entering into a prenuptial or postnuptial agreement, you can better control how your business should be split in the event of separation or even be excluded from any settlement. Remember, nuptial agreements are not legally binding, but they are normally taken into account by the courts if they are drawn up fairly and legally. The needs of both parties will also be taken into consideration.
Reinvest business profits into the business
Try to keep any profits from your limited company separate from your marriage by placing them back into the business.
Avoid using marital assets to secure/invest in the business
Using marital funds to support your business (e.g. loaning money or purchasing business assets) may increase the likelihood that the courts will consider the business a marital asset. For this reason, if you want to avoid your husband or wife from taking part of your business in the event of divorce or dissolution, it is advisable to keep your personal marital finances separate from your business finances.
Avoid the involvement of your spouse in the business
If your spouse is heavily involved in the day-to-day running of your business, even if it was incorporated before you married, the courts are more likely to include it as part of your divorce financial settlement. To protect your limited company in a divorce, it is advisable to avoid the involvement of your husband or wife in the running of the business where possible.
Shareholders/Partnership agreement
Another way to protect your shareholding is to set out what should happen to the business in the event of a divorce in your Articles of Association or through a Shareholders Agreement. Doing so will provide greater control over who can be a shareholder and who shareholders are allowed to transfer shares to, potentially preventing shares from being given to spouses.
