Limited Company Divorce Settlement: What You Need to Know

If you are thinking of splitting up or are already going through a divorce, if you have a limited company, it’s understandable to be concerned about its future and your own financial security. You may already know that financial assets are separated in a divorce settlement but you may be unclear on what can happen to your business. Here are some facts to put you in the know.

What is a matrimonial asset and is my limited company one?

A matrimonial asset are financial assets typically built up or acquired during a marriage. They could be a family or second home, personal property like a car and furniture, pensions saving and investments. If you had assets before your divorce, these will also be considered an asset by the courts, and can therefore be divided in a settlement case. Limited companies are regarded as a separate legal entity, outside of its owners. However, the shares belonging to the company are still considered financial assets and can be added to the matrimonial pot as a result.

If you set up your company ahead of getting married it is advisable to seek legal advice from an experienced family lawyer as this fact can sometimes be taken into consideration. The division of company shares is also irrespective of who started it or who is the one who runs the business on a day-to-day basis.

How to divide your limited company upon divorce

There are no hard and fast rules when it comes to dividing your company, each case has different assets and debts meaning they are treated on a case-by-case basis. If both spouses have made an equal commitment to the business in terms of their involvement, it can be more complex to divide it. Both parties staying in the business is often not an option, except for perhaps on the rare occasion where there has been an overwhelmingly amicable split. Usually, if there is not too much acrimony involved, the two spouses will be able to reach a mutual agreement on how to move forward.

Your options for dividing your limited company:

• One partner buys the other out
• One of the partners becomes the sole owner, and the other receives regular maintenance payments as compensation
• The business is sold and each party receives a share of the sale proceeds
• One of the parties continues to run the business and sells their shares to the other spouse
• A shareholder agreement between the two parties where both of them become shareholders in the business

Ways you can protect your limited company

The prospect of having to go through difficult and stressful divorce proceedings, particularly in the context of your business can be very daunting. Although it is not possible to fully protect your limited company, especially when there are dependent children involved, there are some things you can consider if you are a business owner planning to get married. They are:

• Whether you should get a prenuptial agreement – although prenuptial agreements are not legally binding, they are often taken into account when courts are assessing you’re a financial settlement
• The extent to which you should involve your partner in the business. Think about whether you should allocate them shares or not or appoint them into a senior role.
• Think about the financial reliance you and your family will have on your limited company and if there is another source of income that will provide for them.

Conclusion

A limited company is not exempt from financial settlements in divorce proceedings. They will usually be considered a matrimonial asset and things can get complicated. Take as many steps as you can ahead of getting married to ensure you can protect your business as much as possible before you say ‘I do’.