Divorce and the family business: Financial tips
Going through a divorce is never easy. The process of a divorce or dissolving a civil partnership can be tough on both the heart and your finances. Assessing which assets are to be shared on divorce can be complicated. Yet, can be made easier depending on how comfortable you and your partner are at discussing your financial issues.
Businesses are one of the assets that need to be shared in a divorce. Courts will routinely ask for business interests to be valued during the divorce process. If one or both of you are involved in the running of a family business, it can make separating those finances a little more difficult. Despite this, the more you can agree between you, the less likely it is to cost you.
Dividing business interests on separation
Even if you live together, you don’t have an automatic right to claim on your partners share of business interests. However, if you are also involved in the business, were promised a share of the business or have contributed financially yourself, then you may be able to make a claim for compensation. This is only if your ex-partner refuses to honour any commitments made previous to the divorce proceedings.
In general, the main owner of the business is left with the business itself. The other partner is then compensated with a larger share of another asset, such as property. When you are involved in a family business, this can mean it suits each party better to split the assets in this way. However, it can also mean one person is left with no cash value as all the assets are tied into a business. So, the court allows other ways to distribute finances.
Protecting a family business
In order to protect a business you own with either your parents or your siblings, it’s important to take steps before marriage, just in case. Whilst divorce isn’t always on the forefront of your mind when entering into a partnership, it’s important to protect your family members too.
Prenuptial arrangements can be put in place before the marriage so that you maintain the share of the business. It is important to remember, though, that it would only be your share that is affected. Shares owned by other family members are not counted as marital assets. However, your share may be split between you and your partner in the event of a divorce.
Valuing the business
The value of the business very much depends on its assets, any property owned and stock levels. It may also include any earnings and future projected profits. If it’s just you and your partner who own the business, valuing your shares is relatively easy. However, if other partners are involved, it’s best to seek legal or financial guidance. Furthermore, written agreements can be put in place with any shareholders involved to discuss what would happen in the event of a divorce when it comes to company shares.
What options do I have?
When you are going through a divorce and own a business, it’s really important to agree with your partner what the next steps are going to be. Your business may be another asset owned by both of you, so it needs to be treated in the same way from a financial and legal point of view.
Co-own the business
Whilst it’s not always ideal to co-own a business with your ex-partner, it can work for some people. It means there’s no need for the expense of a valuation and you both get to keep your share of the business. If you are unable to maintain an amicable relationship with your ex-partner, this option would not work. However, if you are able to remain professional, then this could be the option for you.
Buy out your ex-partners share
If you no longer wish to share a business with your ex-partner, then the opportunity can arise whereby one partner buys the other share from the other. With this option, you can either buy the share outright or split other assets for an exchange.
Selling the business
Sometimes, selling the business is the fairer option even though it means closing down the business itself. You both then come out with the money from the business, which can be used to go down your own path.
Financial tips to protect your business during a divorce
The process of a divorce can be complicated enough without disputing over who gets the share of the business. In order to have a more amicable, and less costly, break, there are some good tips you can follow.
1. Consider both parties
Although every situation is different, a divorce is an emotional process. Situations can arise that cause high tempers, bitterness and frustration. However, if you are able to remain calm you can make better long-term financial decisions for both of you.
2. Don’t take bad advice
Unfortunately, there are plenty of people who will want a say in your divorce proceedings and splitting your assets with your partner. If you need advice, don’t listen to everyone telling you what you should or shouldn’t do. Instead, seek out someone you can trust or approach a qualified professional who deals with this kind of thing regularly.
3. Plan from the outset
Some people are quick to get the divorce proceedings completed, so then deal with the consequences later. However, the majority of people that come out of a divorce successfully, plan their finances before signing the papers. If you look at income, expenses and assets earlier on, it can facilitate an easier process.
4. Define your roles
Going into business together, you’ll need well-defined roles and agreements put in place. Otherwise, you’ll be facing a longer and more expensive process. Even if your partner is a silent partner in the business, they are still owed the value of the business. If you haven’t already defined your roles, it may be worth looking at now, to see which assets should be distributed or if the business needs to be sold.
5. Adjust your life insurance
If you’ve made a will or have a life insurance policy in place, get this changed as soon as possible. Choosing your beneficiaries can be vital in ensuring your family is protected. You may also have life insurance run through the business that may need adjusting. You may wish to leave money for your ex-partner if you have children. Alternatively, you can assign a trustee who can facilitate the distribution of your finances to your beneficiaries. Designating someone you can trust is important in protecting your estate. Adjusting your life insurance can make a huge difference in who inherits your business and assets.
6. Transfer your assets first
If you transfer your assets after you are officially divorced, then you can be subject to capital gains tax. If you are still in a relationship, then you are not required to pay this tax. You can actually save money by transferring your assets during the divorce proceedings rather than after the relationship has legally ended. Therefore, you will both be better off in the long term whilst adjusting to living life financially on your own.
7. Take things one step at a time
Divorce isn’t always something that we plan for. Therefore, the process can be overwhelming, which makes financial decisions a little more difficult. However, if you are able to slow down and take things one step at a time, it can help to make sense of the process. This allows you to make sound financial decisions for your future. Without rushing into making decisions, it can ease the transition for both of you.
If you need advice on life insurance to protect your business or family or switching your policy, you can speak to one of our qualified advisors. We provide a fee-free service for our customers, so you can get the right advice to protect your wealth.