My relationship with my wife has unfortunately broken down beyond repair and we’ve agreed to get a divorce – although nothing has been signed.
I’m vaguely familiar with the division of assets during the divorce proceedings but I’m unsure if my business will get caught up in the process.
I’ve been running a graphic design business as a sole trader long before meeting my partner and she has not contributed a single penny to it.
Is she entitled to a portion of my business assets after divorce regardless?
The cost of divorce: A business could form part of the assets to be shared on divorce
Myron Jobson of This is Money says: As is often the case with questions like this, there isn’t a simple yes or no answer.
The divorce court would assess whether your enterprise is a ‘matrimonial asset’ to be divided on divorce or dissolution.
Here, the court would seek to identify if there has been an uptick in the value of your business during your marriage and, if so, if it can really be defined as a wholly non-matrimonial asset.
Even if your business is classified as the latter, your ex could still get a slice of your business assets if the court takes the view that her needs require it. It’s worth noting that this would also work the other way round.
Divorce can be messy process without the extra complication of valuing and splitting business assets, so we’ve enlisted the help of a family lawyer to help steer you in the right direction.
Sarah Bunn, a family lawyer at Slater Gordon, replies: Whilst interlinked, divorce and finances are separate matters.
In order to legally end a marriage the court must grant a decree absolute, but the issue of financial settlement must be dealt with separately and can only be final and binding if it is contained within a court order.
Matrimonial and non-matrimonial Assets
The Matrimonial Causes Act 1973 sets out the factors that a court must consider when assessing a fair division of matrimonial assets.
There is no fixed definition but generally speaking, these are regarded as assets that have been acquired during a marriage and the starting point for the division of them is 50:50.
Non-matrimonial assets, however, in the first instance should not be divided between spouses. These can be loosely defined as assets acquired by one party before the marriage, given as a gift or inherited. For example, a house purchased by one party before the marriage.
Divorce can be messy process in itself without the extra complication of valuing and splitting business assets
Is your business a matrimonial or non-matrimonial property?
The situation becomes more complex when it comes to businesses.
Quite understandably, you consider your business as a non-matrimonial asset as it was set up by you before your marriage and its success is down to your financial backing and expertise.
However, this argument is not a simple one, especially as a business is an entity which is able to expand and accumulate profit.
When assessing whether, and to what extent, your business should form part of matrimonial assets and be shared, the court will look at:
- Whether the value of the business has increased during the marriage and if so…
- Whether it can really be defined as a wholly non-matrimonial asset and not a financial resource for both parties.
You may wish to consider instructing an expert to prepare both a current and historical valuation of the business so you can find out what it was worth at the date of your marriage and factor this into negotiations.
It could be you argue that the value of your business at the date of marriage is a non-matrimonial asset and therefore should not be subject to sharing.
The length of a marriage – and the length of time you may have cohabited before marriage – are also important factors when deciding whether pre-marital property should be taken into consideration.
In a short marriage, arguments that pre-acquired assets should be excluded from distribution on financial settlement are likely to be stronger and easier to justify.
The overriding importance of ‘needs’
All arguments over what is deemed a ‘non-matrimonial asset’ are moot if the court considers that the existing matrimonial assets do not meet the financial needs of you, your wife and any children you have.
As such, even if you were to successfully argue that a large percentage of your business was a non-matrimonial asset, the court does have the power to use your business as a financial resource if takes the view that needs require it.
For example, if you and your wife own a family home and there is not enough equity for both of you to comfortably rehouse.
Protecting your business moving forward
In the event that your business is in whole or in part treated as an asset to be divided between you and your wife, there are settlement options which you could explore to protect your interest.
For example, depending on the value of the other assets, you could consider ‘off-setting’ whereby you offer your wife a larger percentage of other matrimonial assets in return for retaining all of your business.
If you do decide to remarry in the future, then do consider a pre-nuptial agreement.
Whilst not legally binding, they can be a decisive factor when dealing with finances upon divorce and are the most effective way to protect pre-acquired assets when married.
Small Business Essentials