For business owners, divorce can raise difficult questions about what happens to the company they have spent years building. How to protect business assets in a divorce will depend on a range of factors, including when the business was established, how it has developed during the marriage, the financial needs of both parties and the extent to which the business has supported the family.
A business is not automatically divided or sold simply because its owner is getting divorced. However, its value, income and wider financial significance can all be taken into account when the court considers a fair settlement. That makes early planning, accurate valuations and careful legal advice particularly important where a business represents a substantial part of the family’s wealth.
In this guide, we explain how businesses are treated in divorce proceedings in England and Wales, the steps that can help protect business assets in a divorce, and the mistakes business owners should avoid if they want to preserve both the value and day-to-day operation of their company.
Is my business included in a divorce settlement?
Business assets are taken into account on divorce and can form part of the matrimonial pot.
The family courts have a broad discretion when deciding the best way to deal with all assets on divorce, including the family business. The aim is to achieve a fair outcome and, where possible, they will seek to preserve the business if that is in the best interests of both parties. However, the court can also order the sale of all or part of a family business if it thinks it’s appropriate.
If a business was set up or purchased during the marriage, it’s likely to be treated as matrimonial property, which means its value may need to be shared. If the business was set up prior to the marriage, or if it’s a long-standing family business, it may be considered non-matrimonial. However, even then, the court may take all or part of its value into account if the parties’ needs cannot be met without it, particularly if it has contributed to the family’s finances.
For a wider explanation of how ownership, valuation and company shares are handled, our guidance on divorce and business shares explains the issues that commonly arise when a business forms part of the matrimonial assets.
Can my ex-wife or ex-husband claim half my business in a divorce?
There is no rule that a spouse is entitled to half of the business itself. In England and Wales, the court looks at all the circumstances of the case under section 25 of the Matrimonial Causes Act 1973, including each party’s financial resources, needs, contributions, the length of the marriage and the welfare of any children.
A business interest may be valued and taken into account as part of the overall financial settlement. In practice, the non-owner spouse may receive a larger share of other assets, a lump sum, maintenance, or a structured payment rather than shares in the business.
What happens if my spouse says they helped build the business?
The court can take that contribution into account, but it does not automatically mean the spouse will receive a share of the business. Contributions can be financial, such as investing money into the business, or non-financial, such as working in the business without full pay, taking on childcare and home responsibilities so the other spouse could develop the business, or supporting its growth during the marriage. The court will look at the reality of how the business was built and funded, alongside both parties’ needs and the wider asset position.
How is a business valued in divorce proceedings?
The process of understanding the value of the business, and whether a formal valuation will be required, starts with the requirement to provide full and detailed disclosure about the business.
Where company accounts, shareholdings or income are involved, understanding the requirements for financial disclosure in divorce is particularly important before any valuation or settlement can be agreed.
The parties will often jointly instruct an independent forensic accountant or business valuation expert. There is no one formula for valuing a business. The appropriate valuation method depends on the type of business and possible approaches may include one or more of the following:
- Asset-based valuation
- Earnings or profits basis
- Income and liquidity assessment
- Discounted cash flow
Care should also be taken when considering whether, and if so to what extent, a discount should be accepted for a minority shareholding.
When is a business more likely to be treated as part of the divorce settlement?
A business is more likely to be treated as part of the matrimonial assets if it was set up, acquired or significantly developed during the marriage.
Even where a business pre-dates the marriage, the court may take it into account if its value increased during the marriage, if family money or effort supported it, or if the parties’ needs cannot fairly be met without reference to it.
In a long marriage, the distinction between matrimonial and non-matrimonial property can become less important, particularly where the business has provided the family’s income or lifestyle for many years.
How can I protect business assets in a divorce?
A pre-nuptial or post-nuptial agreement can help to protect and preserve businesses from a claim by the spouse. Where families want to reduce risk before marriage, a properly prepared prenuptial agreement can help ring-fence business assets and set clear expectations.
The parties can agree to ring-fence such assets from being divided on divorce which helps to protect those assets from a sale/transfer and disruption to business. Although nuptial agreements are not strictly legally binding, there is significant weight given to its terms and it is highly likely it would be upheld if qualifying criteria is met.
During the marriage and any divorce, it is also sensible to keep clear business records, maintain separate business and personal accounts, avoid using the company as a personal bank account, and make sure shareholder agreements and company documents are up to date.
Can you make changes to a business during divorce?
Normal, genuine business activity can usually continue during divorce proceedings. However, business owners should avoid unusual or significant changes without taking advice, particularly if they could reduce the value of the business or affect the other spouse’s claim.
If a transaction is intended to defeat or reduce a financial claim, the court has powers to intervene and may reverse or set it aside.
How do I keep business finances separate from personal finances during divorce?
Keep separate bank accounts, accounting records and payment streams wherever possible. Avoid paying personal expenses through the business unless they are properly recorded and advised upon and avoid moving money between personal and business accounts without a clear explanation.
However, separation does not mean the business will be ignored in the divorce; it may still be treated as a financial resource or valued as part of the wider settlement.
How will the court look at my business income and company value in divorce?
The court will usually consider both the capital value of the business and the income it can generate. A valuable business may have limited cash available, and a profitable business may need to retain funds for working capital, tax, debt, staff or reinvestment. The court will therefore look carefully at what is realistic and commercially sustainable.
What should I avoid doing if I own a business and I am getting divorced?
Avoid anything that could look like an attempt to hide, reduce or move value out of the business. This includes transferring shares, selling assets at an undervalue, delaying invoices or contracts, increasing debt without a commercial reason, or paying personal expenses through the business without proper records.
You should also avoid informal valuations, incomplete disclosure, and making major decisions without legal and accountancy advice. The safer approach is to continue trading normally, keep clear records, provide full and frank disclosure, and take advice before any significant business transaction.
What mistakes do business owners make in divorce?
Common mistakes include failing to give full and frank financial disclosure, relying on an informal or unrealistic business valuation, mixing business and personal finances, and making significant changes to the business without taking legal and accountancy advice. Business owners can also create difficulties by assuming the company will be ignored because shares are held in their sole name, or by assuming their spouse is automatically entitled to half of the business.
Another frequent mistake is trying to move, hide or reduce value in the business. Steps like these may be scrutinised by the court and, if they are intended to defeat a financial claim, the court has powers to intervene.
Why is hiding business assets a bad idea in divorce?
Both parties are under a strict legal duty to provide full and frank disclosure of all their assets. This duty is ongoing. Attempting to hide or failing to disclose assets can lead to serious consequences, such as fines, payment of the other party’s legal costs, or even imprisonment.
If hidden assets are found during the divorce process, the courts will take into account those hidden assets and add them to the ‘pot’ of assets being considered for division.
If hidden assets are discovered after the final financial order is made, the court can reopen the case to set aside the original financial settlement and consider the section 25 factors afresh taking into account the hidden assets.
Can I transfer business assets before divorce?
As above, attempting to dispose of assets can lead to serious consequences, such as fines, payment of the other party’s legal costs, or even imprisonment, especially if it is done to hide or reduce a spouse's claim for financial relief. The court has the power to set aside or prevent any transfers intending to defeat a financial claim.
What happens if the divorce involves a family business or company income?
If the divorce involves a family business or company income, the business is likely to be treated as a matrimonial asset and included in the overall financial evaluation. The Court will look to determine the value of each spouse’s interest in the business, where a formal valuation of the company may be necessary.
The court generally prefers solutions that preserve a viable business, particularly where it supports the family or employees. A settlement may therefore involve offsetting against other assets, a lump sum paid over time, maintenance from business income, or, in some cases, a transfer of shares where that is workable.
Can the court force me to sell my business in a divorce? Are there any other options?
The court can order a sale of business assets or shares, but this is usually a last resort. The court will consider whether a sale is fair, proportionate and commercially sensible. If the business is viable and provides income, the court will often look for alternatives that meet both parties’ needs without the need for the business to be sold.
A sale might only be ordered if there are no other liquid assets available and no other practical way to achieve a fair financial settlement or meet both parties’ needs.
How do I protect business cash flow during divorce proceedings?
Protecting cash flow requires a realistic settlement structure and careful disclosure. Keep trading in the ordinary course, maintain accurate management accounts, and avoid sudden changes to salary, dividends or director’s loans unless there is a genuine commercial reason.
Settlement options such as offsetting against other assets, staged lump sums, deferred payments or maintenance may reduce pressure on the business. It is also important to involve accountants early so that any proposed order is affordable, tax-efficient and does not undermine the business.
When should I speak to a divorce solicitor about my business?
A divorce solicitor should be contacted as soon as possible. Our specialist team of divorce lawyers can advise you throughout the divorce process on any business-related issue. We also have close links with accountants and other professionals who may be needed to value a business or provide specialist tax advice.
Contact our family team
Protecting a business during divorce is rarely about removing it from consideration altogether. Instead, the priority is often to ensure that its true value and commercial realities are properly understood, while exploring a settlement that meets both parties’ needs without unnecessarily disrupting a viable business.
Measures such as pre or post-nuptial agreements, keeping business and personal finances clearly separated, maintaining robust records and taking advice before making significant transactions can all strengthen your position. Where divorce proceedings have already begun, full and frank disclosure, a credible valuation and a commercially realistic settlement strategy will be essential.
If you own a business and are concerned about how divorce could affect your company, taking specialist advice at an early stage can give you a clearer understanding of the risks and the options available.
Our divorce lawyers work closely with business owners and, where necessary, accountants and other professional advisers to help find practical solutions that protect both personal interests and the long-term future of the business. If you require support or advice, our team can assist you with understanding your position and the best way forward.
Key Contact
Simon Magner Mawdsley
Partner | Head of Family Law
Described by clients as "an excellent listener, open and engaging", "exceptional", "reassuring" and "insightful", Simon acts for a range of clients in all aspects of relationship breakdowns including divorce, resolution of financial matters, civil partnerships, cohabitation disputes, pre- and post-marital agreements, injunctions, and children matters.
