If you’re getting divorced and own your own business, you may be concerned that your business is going to have to be sold as part of the divorce settlement. This concern is understandable given that the business is likely to be one of the most valuable assets, if not the most valuable, of the marriage. In this blog, we’ll explore how the courts typically treat business assets during divorce, and what your options are to protect the business and a fair financial outcome.
The business as an asset
Businesses come in many shapes and sizes, from huge multinational PLCs with numerous shareholders worth billions of pounds to a sole trader working from their kitchen table. Whatever its shape or size, during divorce a business will be seen as part of the ‘pot’ of assets, alongside property, pensions, investments etc.
Businesses are different to the other assets
Although a business is included as part of the assets considered during divorce, the Courts are aware that businesses are not the same as the other assets. For example, the family home will often have a clear market value and can usually be sold relatively quickly if needed. However, businesses are not so easy to value in the first place and are usually considerably harder to sell than the family home. Additionally, there’s the issue that the business may not necessarily have any value at all, i.e. it may not be possible to sell it, but instead its value may be the income stream it produces for you.
Due to this, businesses are not treated in the same way as other assets during divorce. The family home, investments and pensions are seen as safe, so-called ‘copper-bottomed’ assets. Whereas the business is seen as a potentially ‘risk-laden’ asset because its value may not be clear and its success or otherwise is based on a variety of factors.
This means that whilst the family home and the business may appear to be worth the same on paper, their values may be very different. The house may be easy to sell, but the business may be going through a period of transition or growth (there may be employees to think about etc.), so your company is considered quite differently to your house. In theory they have the same value, but the business is potentially much riskier as an asset and this would need to be factored into the settlement.
Non-matrimonial considerations
A significant factor in many cases is whether the business is classed as a ‘matrimonial’, or ‘non-matrimonial’ asset. This distinction matters because ‘non-matrimonial’ assets are treated very differently to ‘matrimonial’ assets in divorce proceedings and may not be subject to the same division as matrimonial assets.
These can be summarised as follows:
- Matrimonial assets – These are assets that have accumulated during the marriage, e.g. the family home. The starting point is that these assets should be shared equally.
- Non-matrimonial assets – These are assets that have usually been acquired prior to marriage and are owned by only one spouse, e.g. a business. These assets are only shared if the other party can show a genuine need.
Therefore, if a business was set up during the marriage, then the starting point will be that it is a matrimonial asset and will be subject to the ‘equal sharing’ principle. Alternatively, if the business was set up outside the marriage, then it would not be subject to equal sharing.
In many cases, a business falls into both non-matrimonial and matrimonial categories. This often happens when the business was started before the marriage but continued to grow during it. As a result, part of the business may be considered non-matrimonial (and not subject to equal sharing), while the portion built up during the marriage is matrimonial and can be shared equally between you both.
This was illustrated in the recent case of Vince v Vince [2024] EWFC 389 (20 December 2024). This case made the headlines because:
- It involved Mr Dale Vince who is very wealthy and has been in the newspapers for his donations to environmental groups and political parties.
- Mr Vince had been to the Supreme Court 10 years previously in a seminal case involving his previous wife who was seeking a financial settlement more than 20 years after they had first divorced.
In the 2024 case, Mr Vince’s business was very successful and had a value of between £148m - £165m. His wife was seeking 50% of the business, as well as other assets. She argued this on the basis that this was a long marriage, and they had two children together. Mr Vince claimed that he had started his business prior to the marriage and therefore part of the value of the business was ‘non-matrimonial’ and so shouldn’t be shared with his wife.
The Judge found in Mr Vince’s favour in respect of part of the business being ‘non-matrimonial’, with the Judge saying that the pre-marital element of the business should be Mr Vince’s entirely. The outcome, therefore, was that the wife received 37.9% of the total assets to reflect the part of the business that was ‘non-matrimonial’.
This case was a perfect example of when the Courts do not simply divide everything 50/50, and there is a very important distinction between assets acquired prior to the marriage and those accrued during the marriage.
Limited companies are legally separate
The Courts also recognise that a limited company is a distinct legal entity. In a leading divorce case in this area, it was established that company assets belong to the company, and that to justify an order to transfer company assets to a spouse, it must be proven that they have legal entitlement to those assets.
Therefore, whilst there may not be much of a distinction between an individual and their business when they’re a sole trader, it is understood that there is a very significant difference between a limited company and its owner. As such, the limited company cannot simply be seen as an extension of your bank account and raided accordingly in the divorce settlement.
Selling the business
The Courts are not keen for the business to have to be sold to fund the divorce settlement as they don’t want to ‘kill the goose that laid the golden egg’. Instead, they will look at ways round this, including giving the spouse with the business time to release funds.
In the Vince v Vince case, Mr Vince couldn’t raise such a huge sum overnight without selling the business. As such, the Judge allowed Mr Vince to pay the lump sum over 3 years as follows:
- Year 1 = £13.94m;
- Year 2 = £14.49m;
- Year 3 = £15.08m.
This highlights the courts’ flexibility when it comes to payment options to preserve the business where possible.
Summary
So, will you have to sell your business if you get divorced? The answer to that is that it’s very, very unlikely. While your business will be treated as a financial asset (alongside others including the home), courts usually avoid forcing a sale. Instead, they consider fair alternatives, such as offsetting its value or allowing time to raise funds.
