Will my business be used in my divorce?
When deciding to divorce, there will be a lot of decisions to make regarding arrangements for children and division of financial assets. If there are any businesses or business interests in the family, these will need to be looked at carefully. Sam Miles, Family Partner, explains here what business owners should be aware of when making the decision to divorce.
“When a couple divorces, in order to reach a financial settlement between the parties there needs to be full financial disclosure, which includes any business assets,” explains Sam. “Each situation will be different in terms of who owns the business, whether they own it solely or there are other stakeholders, and the structure of the business. Typically only the business assets owned by the divorcing parties will be taken into account, but before any decisions can be made, the business may need to be expertly valued.”
Valuing a business for divorce
There are a number of different methods for valuing a business which depend on the nature and purpose of the business in question. These include net asset, earnings, discounted cash flow, industry practice, and dividend yield bases. “This stage is vital and expert help may be required, particularly if one of the parties is not involved in the business,” continues Sam.
Corporate structures in divorce
While it is the norm for Courts to consider only the assets owned by the divorcing parties, there have been several cases in recent years where the Supreme Court has contradicted this, looking deeper into the true ownership of the business and “piercing the corporate veil” to bring assets beyond the ownership of the parties back into the equation. In the case of Prest v Petrodel Resources Limited & Others in 2013, Mr Prest was a wealthy oil trader who transferred seven UK residential properties to a group of companies; Petrodel Resources. This meant that, theoretically, they did not need to be detailed in the financial disclosure as they were owned by the group of companies and not by Mr Prest himself.
“The decision made by the Supreme Court in this case was revolutionary, as they concluded that the properties were in fact being held in trust for Mr Prest, with him still the rightful owner and so the Court ordered the companies to transfer the properties to the former Mrs Prest as part of the divorce settlement,” explains Sam.
A more recent case was the matter of Chai v Peng & Others, which was concluded this year. In this case the husband, Dr Peng, owned £18million worth of UK real estate which was held in a family company. “The Court found a similar ruling to Prest, in that the property was being held in trust and could be transferred to his former wife, Mrs Chai,” continues Sam.
Steps to protect business in divorce
Both of these cases have implications for those who own a business, or have placed assets into a corporate structure ahead of a divorce. “Pre or post-nuptial agreements are valuable tools when protecting family and company assets,” concludes Sam. “If these documents have not been used, it is important that before commencing divorce proceedings, advice is taken as to the right course of action for your situation, and your business structure. It may be that mediation is a more pragmatic approach to reaching these agreements than facing each other in Court, and a family solicitor can explain all of the options open to you.”
If you own a business and have questions about how it could be used in your divorce, contact Sam or one of the team on 02380 717431 or email firstname.lastname@example.org.
This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.