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Financial settlements within divorce may involve business interests held by either party, or indeed jointly. There are different types of businesses, and each has to be considered with a different method. A party may be a sole trader, a partner in a partnership, or a director and shareholder in a limited company.

What happens to the business interest?

Where there is a business interest involved, it is likely that a business valuation is required. This will report whether there is a capital value that may be shared with the other party, or whether income should be paid to the other party by way of dividends or salary. Normally in financial proceedings, the court will order a clean break so that a non-owning spouse will have additional capital from other matrimonial assets.

What other costs will I incur?

A business valuation is essential where the business has a capital value. A single joint expert would be appointed to value the business and the shares held by a spouse, and to assess if the business has financial capability of paying the non-owning / other spouse a capital sum. Evidence such as the last three years of business accounts and the bank account statements would be required. If there is a capital payment made, taxation considerations have to be made. A tax expert’s report would be required, as it is essential that capital gains tax liability is included in any valuation.

Protecting your business

Wherever a business owner is unable to separate a business fully from marital assets, they may want to take protective measures before a divorce or separation. This may be in the form of a shareholder’s agreement, where they are a shareholder in a company, or with the other spouse or shareholders. They may also wish to enter into a pre-nuptial or post-nuptial agreement.

Interveners in Family Proceedings

There may be cases where parties within financial proceedings have had financial contributions from third parties. If there is dispute over these contributions, the court may also order the third parties to be joined into these proceedings. Instances in which this may arise would be, for example, where a loan has been provided for the purchase of a home; if one party has a business with a third party and the capital value of either the business or shares is in dispute; or if a party is the beneficiary under a trust.

Should a third party automatically be joined?

This depends. A third party may support the case of one of the parties and as such, a court may be satisfied that evidence is sufficient. However, if the third party disputes another party’s beneficial entitlement, the court will need to determine the issue.

What if I am a beneficiary under a Trust?

There has been case law dealing with the evidence a beneficiary is able to provide to the court under a trust. The court is unlikely to accept that the beneficiary is not entitled to obtain documentation relating to a trust. If the beneficiary does not produce evidence, the court may join the trustee of the trust. Each case is judged on its own merits.

What documents may be disclosed?

Depending on the trust, a court will expect the following documents to be disclosed;-

  • A copy of the trust and any deeds of variation
  • The trust accounts, giving details of the income and capital that may have been distributed
  • Evidence of any payments made to the beneficiary by the trust
  • A valuation of the trust assets

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