The Business Owner's Divorce

Jacqueline commented: “As I have progressed in my career, I have dealt with more complicated cases. Many of my clients own their own businesses. I like dealing with this type of work. As a business owner, I understand the need for cash in a business, what is really going on behind the profit and loss accounts, what to look for in business and personal bank statements and the different ways in which a business can be valued.”

There can be a vast range of outcomes for the business owner who is divorcing. Their share of the value of a business will have to be taken into account when reaching a settlement.

In some cases businesses have been valued at millions. This can come as a shock to the spouse not involved in the running of the business. Especially when they have been offered a very low Financial Settlement upon divorce. Many businesses have been built up over decades. In the North East for example, IT companies started by founders straight out of university thirty years ago are now seen as world leading.

On the other hand, if a business really is entirely dependent upon one main person for its income it will often be valued using much lower multipliers.

In the case of “Fred” and “Tina,” Fred ran his own business. Tina did not work, and she sought a large proportion of the value of the matrimonial home, a large maintenance payment for life and a lump sum equivalent to half of the value of Fred’s business. She was determined that the value of Fred’s business would be about £400,000.

Having looked at the accounts and turnover of Fred’s business, Emmersons Family Law team could see that he would have very little by way of goodwill in his business. It was the classic case of the business was reliant upon Fred to keep it going, he was the main fee earner. So without him at the helm, there would not really be a business to sell.

Emmersons thought the business would be worth at most £40,000. Arrangements were made for a specialist accountant to value it; it was actually valued at about £25,000. This was a joint instruction from both Fred and his wife, via solicitors, and therefore Fred’s wife had to accept the valuation.

It can be very complicated to unpick the workings of a business. Is one partner going to leave the business, if so how are they to be compensated?

Can the business afford to compensate them?

The business is the golden goose that provides the income, often for the whole family. If you strangle it then that income is lost. Again, it’s about the long term view, how can two separate parties be provided for in the long term?

A well-run business, with strong branding, strong service culture and repeat clients can be worth a lot of money. If it doesn’t rely solely on you to keep it going, then it is worth even more. More and more consolidators are buying smaller businesses, there is a lot of venture capital money available at the moment. Dentists, vets, accountancy practices, IT and opticians have all benefitted recently from selling their businesses as going concerns.

Is your pending divorce the time to sell up and reap the rewards?

Contact Emmersons Solicitors for Divorce advice on 0191 284 6989 (Newcastle) or 0191 567 6667 (Sunderland).