Divorce when you own a business

[BlueGingerale]

I’m planning to leave (divorce?) my H in 3 years when my youngest finishes school.

I own a successful business that he has never worked in and is not a director of.

We have both worked during our 20 year marriage and neither of us took time off to raise the children.

When H was drunk he said if I divorced him he’d take half my business. Can he do that?????

Forgot to say H is currently unemployed and I’m not sure if he is ever going to go back to work again. Which is the main reason I don’t want to separate before the DC have finished school.

If he gets a job I think I’d ask him to leave sooner.

Its not that simple.

In general the starting principle might be that all assets are shared 50:50 though that can be varied if eg there are children who will be resident with one parent and the only way to adequately provide for the children is to have an uneven split - obviously that won't be the case for you.

So property, savings, pensions etc all get put into a pot with a known value and that pot is then divided up but each individual item may not be split so eg X gets to keep the final salary pension valued at £500,000 and Y gets to keep the house with £500,000 equity.

The value of a small business is not easy to assess and it depends what you work in. The business may generate £100,000 of income but that doesn't mean that the business is worth £1,000,000 as an asset if all that income is down to your own efforts and without you the company would be nothing. The real value of the company is the sum of its actual assets - maybe a printer or a box of two of leaflets in some cases, plus the tenuous value of the "brand" - ie if you were retiring and wished to sell the brand as a going concern without your own services attached what might it be worth? It might be sensible to structure the finances of the company such that it pays you a salary instead of you taking dividends. It might be that when the time comes your STBXDH gets a 50% share of that company which then turns out to be pretty much worthless as you are free to resign from that company and set up a different one that he has no rights to.

But I am not a lawyer or an accountant. Get professional advice.

Thanks. I will get a lawyer.

Yes, I am the value of the business. I think without me the business is worthless. Or rather I don’t think it would be possible to sell. Nobody would want to buy it.

I employ 2 people full time. Turnover is around £100k. Profit obv substantially less.

Yes I could close this business and set up a new one (I think)

Despite not being a lawyer @YobaOljazUwaque seems to have summed it up nicely.

Although the value of the business is largely in you; what you tend to find is some ex's use it as a bargaining tool. Balanced against that is how much each party wants to spend either pursuing or resisting it. £300 an hour each fr lawyers fees soon overtakes any benefit

Marie - sorry to be dense. I’m totally new to all this.

Are you saying he’d have to spend thousands on lawyers to get half my business.

And I’d have to spend thousands on lawyers to counteract that.

And at the end he’d still get nothing but we’d both have spent a lot of money?

He hasn’t got any money. I’m the earner. So how likely is it to go that way?

Are you saying he’d have to spend thousands on lawyers to get half my business

Marie is saying that it could cost him a lot of money to pursue a claim for part of your business and it could cost you a lot of money to resist his claim. No-one on here can say for sure what the outcome would be if you both went down that path. It is much better if you agree the finances between you (preferably when he isn't drunk!).

You really need to see a lawyer. Once they are in possession of all the facts they will be able to give you some idea of what a fair settlement would look like.

Yes @BlueGingerale . @prh47bridge is correct. However, to clarify, the cost would be wrapped up in your divorce and financial agreement as the business would just form part of the wider assets, albeit it would be complicated as I suspect the value of the business would be difficult..in fact it could be zero.

The frequent advice on here is to see a lawyer. Totally right as no expert on here can give definitive advice. However, the reality is that few normal people can afford an extensive fight, let alone a fight to the courts unless rich as the legal fees cripple them. I know of another couple recently, not rich not reasonable comfortable split and had a few disagreements which spun it out and cost £40 k in legal fees...that wasn't for a court hearing either. £300 an hour is prob the average and more depending on the company

So unless you had to pay his legal fees he would struggle unless he self represented and forced you to defend it.

Having been in your position my solicitor and I used one of the easily available value calculators that are based on turnover to value my goodwill in the business, valued the assets along with the other assets. We then made a fair, but not foolhardy offer.
Ex-H took no advice ( his choice) and accepted the offer. My business was good, I worked hard and I will sell it in the next few years for around 7 times it's value three years ago.

my solicitor and I used one of the easily available value calculators that are based on turnover to value my goodwill in the business

I hope your solicitor had a robust insurance policy, or at the very least he/she heavily qualified their advice.

This all sounds very complicated and scary.

And totally unfair! Why does he have any claim to my business? It makes no sense at all.

Hmmmphhhh

@BlueGingerale because it's a marital asset like house equity, any pensions etc. Annoying as you say if he's not working - unless a good reason such as carer or illness. Why doesn't he work?

He’s job hunting. And may get a job soon. But with brexit there’s not many jobs in his field. And he isn’t yet prepared to take anything.

It makes no sense that my company is a marital asset. But sense or not I need to get my head round the law.

If you are the company, then the company is simply a vehicle for you to sell your services, so it has no intrinsic value.

If it's a marital asset then it is still worth zero, unless it is heavy with cash.

totally unfair! Why does he have any claim to my business? It makes no sense at all

Errrr...cos you're married and all money and assets are joint because you're married and therefore LEGALLY he has a right to claim on it
If it was the other way round YOU would definitely feel entitled to a share of the business and you would have reasons to justify your entitlement too.

The fit of the shoe never goes down well when it's a woman who's the high/main earner or breadwinner.

For the sense and justification of this - well this is what marriage is. The tying together of two people's fortunes, quite literally. You are no longer two individuals when you marry, but a single partnership. If during this period of you supporting him, he had invented an amazing new thing and patented it and sold the idea to a company for millions of pounds then that money would also be an asset of the marriage despite you having no input into it. It is a shame that your stbxdh is instead a rather useless lump so no such good fortune for you, but the principle stands that barring reasonable grounds for an uneven split, in general assets acquired by either party during the course of the marriage will be regarded as joint property. So time the question of the company being an asset of the marriage is not in doubt - merely that given the company has no intrinsic value if you are not its employee, it is an asset of negligible value.

I am not convinced of the wisdom of waiting 3 years before starting divorce proceedings. Again I am not a lawyer but surely the longer you support him for, the more grounds he had to argue that he is your dependent and the stronger his claim over your wealth. I don't think you have mentioned how long he has been unemployed for but of it's relatively recent and the general situation prior to that was you both being employed then I think that is better for you to boot him off your dependents list sooner rather than later.

Monkey - I absolutely wouldn’t feel I had a claim to HIS business. That’s my point. We’ve both worked (more or less) for 20 years. We’ve shared our money for the last 20 years. We’ve shared the earnings from my company. But why should we share the future value of my company? It really doesn’t make sense. But I accept that the law takes a different view.

It’s a software company. And I am the programmer. And I employ 3 people (2 full time 1 part time) to do sales and marketing.

So without me the company couldn’t function.

I couldn’t sell the company. Nobody would buy it.

So I can’t get my head round if the company has value or not.

If the value is profit per month / year times so many years then it has value. But if I resigned the company would have to be closed down.

@BlueGingerale But he wouldn’t benefit from future profits. As unfair as it sounds, that’s the way it goes. Beware of any joint debts too. DH had to agree to take on a joint debt that legally (note the word legally) his ex was liable for as it had been bought by a debt recovery agency. She refused point blank to pay her share and wouldn’t sign the clean break until he took it on. Fortunately it was only about £1300 but I know how annoying these things can be.

You value a company based on its future earnings. So he would be getting a share of my future earnings.

That's why I suggested you look in to paying yourself a salary rather than taking company profits as dividends. Tax-wise it works out very similar, but if your salary is set correctly then the profit of the company becomes pretty much zero. What is the value then?

The intellectual property of the software you have written has a value - do you do one-off bespoke programmes that you sell to a single business and assign the IP to them retaining no future interest, or do you keep the IP yourself as an individual or does the company you own hold the IP?

There is absolutely no need for your stbxdh to have any rights whatsoever to a share of your future profitability. What he is entitled to is a fair share (which may or may not be 50% that is not for us to decide) of the whole pile of assets that the two of you have amassed corporately over the last 20 years. If someone in his position was posting here, I would be advising that his best hope was to ensure the company is valued as highly as possible, but to use that valuation to get as big a slice as possible of the other assets eg more equity from the house. Actually accepting a 50% share of ownership as part of his settlement would be very dangerous for him precisely because the profits could plummet to zero any time you choose.

I suspect them that the value of the company is fairly small as the value is in you and you could walk away. It isn't very saleable unless there is lots of good will which is unlikely if you walk away (and register and new limited company)

I was running my own business when I divorced but it was a consultancy, I was it, no employees, and it had no sellable assets, so we just assumed it had no value and ignored it.

This thread is 100% hypothetical, because it seems to have already been established that your business has no intrinsic value.

If it was saleable, you'd not be sharing the future capital value of the business. You'd be sharing the current sale value.

You can't, as the higher earning spouse, think that having to pay your husband maintenance, or a higher capital sum in lieu of maintenance, is you sharing the future value of the business. That would be illogical. You'd be sharing your future income. Whether you like it or not your husband either has a maintenance claim against you, or a genuine need for more capital than you due to you earning and him not.

I think it the form of the business might make a difference - is it a limited company? You say our husband is not a director, but is he a shareholder? Shareholders are the ones you need to think about, not directors. Most limited companies have something in their articles that state how shareholders can be bought out. Not sure how that plays out in a divorce - but the company isn't getting divorced, one of the shareholders is.

Anyway - lawyer all the way