Is my spouse entitled to a share of my business in a divorce?

When a marriage or civil partnership breaks down, and one or both spouses have an interest in a business, the question of whether – and how – that business should be divided can be both legally and emotionally complex. The family courts are tasked with ensuring that the financial outcome is fair to both parties, and that process often involves detailed scrutiny of business interests, ownership structures, and future earning potential.

In this article, Family & Matrimonial lawyer Lorraine Harvey explores how the courts approach the issue of whether a spouse is entitled to a share of the other’s business and, if so, how that share is determined and valued.

When are business assets considered to be part of the matrimonial pot?

A business interest, whether a sole proprietorship, partnership share, or limited company, is treated by the court as a potential matrimonial asset. The starting point is to identify the nature of the business interest, how and when it was acquired, and whether it falls within the “matrimonial pot” available for division.

In most cases, a business interest acquired during the marriage will be considered matrimonial property. Even if the business predates the marriage, it may still be brought into the equation if it has grown significantly during the marriage, particularly if the other spouse contributed to that growth, whether directly through work or indirectly by supporting the family while the business was developed.

Where a business is inherited, or was clearly kept separate from the marital finances, arguments may be made that it should be considered “non-matrimonial”. However, the court has a discretion to include such assets where necessary to achieve a fair outcome, especially if there are insufficient other assets with which to meet the needs of the other spouse or children.

What will the actual division of business assets look like?

Even where a business interest is recognised as a matrimonial asset, that does not automatically entitle the other spouse to a literal share of it. The court will look at the business as a whole and consider whether it can actually or practically be divided, whether business operations would be affected, and whether there are alternative assets available that would serve the same purpose.

The family courts are generally cautious about interfering with the operation or ownership of a business, particularly where third-party interests are involved or the business is the primary source of income. In most cases, where possible, the business owner will usually be left with the business, while the other partner will be compensated with a larger share of other assets or maintenance payments. That said, if both spouses were actively involved in the business or if shares are jointly owned, a transfer or sale may be considered. The court may order a buyout, sale, or division of shares.

If there are liquidity problems and cash cannot be easily extracted from the business, the court may allow staged payments, deferred lump sums, or ongoing maintenance.

How is a business interest valued?

If both parties can agree on the value of the business, the process becomes simpler and often less costly. But disputes over valuation are common, especially where one spouse perceives the other to be undervaluing their interest or masking income.

The appointment of a forensic accountant is the common solution if the parties cannot agree, and the court can order that the instruction of a joint expert. Such accountant will be asked to report on the net values of business assets, any earnings that business assets may be capable of generating, debts and liabilities, business goodwill, any relevant market factors, how easily or quickly their value can be realised, and any tax liabilities or deductions.

The court will also look at the ownership structure of the business and the roles the spouses played in the business, for example whether they were directly involved or in a supporting role and their tasks and responsibilities. The court will seek to achieve fairness between the parties having regard to all factors.

Will prenuptial and postnuptial agreements be considered?

The courts will look at any prenuptial or postnuptial agreements entered into by the spouses. While such agreements are not automatically binding in England and Wales, the courts will give them considerable weight if they are entered into freely, with full disclosure and independent legal advice, and if they do not lead to an unfair result.

Business owners concerned about protecting their business assets in the event of marriage/partnership breakdown should take advice on the use of such agreements as part of broader asset protection planning.

Will there be tax considerations?

There may be Capital Gains Tax considerations if assets are sold or transferred, and Stamp Duty may be payable on the transfer of property or shares.

Dividing a business during divorce requires careful balancing. For a business-owning spouse, it will be about protecting the business’s integrity and viability; for the non-owning spouse, it will be about securing a fair share. With early expert advice, solutions can be achieved that meet the needs of the business, the spouses, and the family.

If you have any questions or concerns about business assets on divorce, please contact Family & Matrimonial lawyer Lorraine Harvey.