What happens with my small business in a divorce?

Mumof3confused · 2022-03-05T11:07:43+00:00

I have a small business (I am a coach) and I wondered if this is something that would be part of the divorce settlement? There are no assets a such and it’s only a few years old, I am a one-man-band.

DenholmElliot · 05/03/2022 11:16

So I'm guessing that you are a coach and you've set yourself up as a limited company is that right? No, it won't be considered as part of the divorce settlement as there are no assets.

Whats your ex gonna do? Ask for half of the business assets (that don't exist lol)?

WouldIBeATwat · 05/03/2022 11:17

If Ltd company - nothing. It is a separate legal entity.

If sole trader, any assets would be taken into account, but you say there are none, so……

Original poster

Mumof3confused · 05/03/2022 14:47

Ok it’s just that he’s been advised he’s got ‘rights’ but I’ve no idea how to value my business as it stands and falls with me. He said something about future earnings which I believe is complete BS since it’s hardly a multi million pound business.

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waterSpider · 05/03/2022 15:03

Your income/earnings from the business will be part of the mix, but only to the extent you can support yourself. Only if doing REALLY well would the income matter.

BlueEyesWhiteDragon · 05/03/2022 15:14

Your shares of the company would form part of the divorce financials

Assuming you are the only shareholder that means the value of the business is technically a marital asset.

I know you say it's go no assets but what does the balance sheet say regarding reserves (I.e. retained profit)? Has it got any debts owed to it?

A valuation for sale (which would be the value for a divorce) is often based on a multiplier of your profit so is it profitable?

Original poster

Mumof3confused · 05/03/2022 17:06

@BlueEyesWhiteDragon it has made a decent profit in the last couple of years but this year is going to be a fair bit less. It does have some retained profit which I took out as a director’s loan and slowly paying back. He has a full time job which is very secure and which means he has full pay if he’s off sick long term and gives him much better borrowing potential in terms of a mortgage so I don’t feel there’s a ‘need’ for him to have a share of my business - especially since he’s earning a decent salary as well as coming away with a large sum of cash from our house sale which he can use towards a deposit. My business doesn’t have anywhere near the same security as his job.

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HollowTalk · 05/03/2022 17:08

@waterSpider

Your income/earnings from the business will be part of the mix, but only to the extent you can support yourself. Only if doing REALLY well would the income matter.

But surely only past earnings would be taken into account? She might give it up and get a full time job or the business might do well but if she is no longer married then it's nothing to do with her ex husband.

Original poster

Mumof3confused · 05/03/2022 18:55

Past earnings based on last two years were good but I’m projecting less this year (due to burnout) and of course the business depends entirely on my capacity in terms of time available, health and external factors. My last two years is not indicative of future earnings at all.

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GiltEdges · 05/03/2022 19:03

@WouldIBeATwat

If Ltd company - nothing. It is a separate legal entity.

If sole trader, any assets would be taken into account, but you say there are none, so……

This just isn’t true unfortunately.

FIL and MIL are currently divorcing and he has a limited company that he’s run on his own for the past 20 years (no involvement from MIL at all). He’s also the only shareholder.

As part of the divorce proceedings, MIL is asking for 50% of the current value of his shareholding in the business and the court has required that he have the business valued so that they can determine the settlement.

GiltEdges · 05/03/2022 19:05

But surely only past earnings would be taken into account? She might give it up and get a full time job or the business might do well but if she is no longer married then it's nothing to do with her ex husband

Also not true based on FILs situation. He’s had to submit the last year’s accounts to the court despite MIL having left him 4 years ago. It’s the current value of the business that matters. Even though he could theoretically close it down and get a job working for someone else tomorrow 🤷🏼‍♀️

LemonTT · 05/03/2022 19:45

The OP derives income from the Company. This is relevant because her earnings are relevant.

She owns the company so it is an asset. One that is included in the marital assets. It might technically be worth zero. But it is still an asset.

BlueEyesWhiteDragon · 05/03/2022 20:09

[quote Mumof3confused]@BlueEyesWhiteDragon it has made a decent profit in the last couple of years but this year is going to be a fair bit less. It does have some retained profit which I took out as a director’s loan and slowly paying back. He has a full time job which is very secure and which means he has full pay if he’s off sick long term and gives him much better borrowing potential in terms of a mortgage so I don’t feel there’s a ‘need’ for him to have a share of my business - especially since he’s earning a decent salary as well as coming away with a large sum of cash from our house sale which he can use towards a deposit. My business doesn’t have anywhere near the same security as his job.[/quote]
Well then straight away the business has assets of the retained profit plus the money you owe it less any debts the company owes.

As a rough figure a business could be valued at 3 times its average annual profit but that does also depend on the assets on the balance sheet and without figures its hard to guess. There is an element to argue that a business that relies solely on one shareholder to generate all its income is valued as less than that as ultimately it puts it in precarious position and as a saleable asset its goodwill client list and the name you really selling but your company will have value and as much as it pains you that value goes in the pot. .

BlueEyesWhiteDragon · 05/03/2022 20:12

@Mumof3confused

Past earnings based on last two years were good but I’m projecting less this year (due to burnout) and of course the business depends entirely on my capacity in terms of time available, health and external factors. My last two years is not indicative of future earnings at all.

Also be very careful of this. In my experience (and note I'm an accountant not a lawyer so feel free to discard) the courts take a very dim view of parties running a business value down before a financial settlement. I'm not saying you are but be careful about having some good years and then a rubbish one right before you give the figures over. As you a limited company your accounts are available to the other side from companies house.

Original poster

Mumof3confused · 06/03/2022 07:24

@BlueEyesWhiteDragon this is not due to divorce, simply the natural progression due to various factors which I won’t go into, but basically, lockdown was hugely beneficial to my business which was its first year of trading. There are no company accounts yet.

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