There are often many financial matters to consider in a divorce: the division of assets and property, the question of whether to divide the pension of one party, and ongoing child maintenance. All can add complexity to proceedings but when you are company director there are other things to consider too. In this blog, we explore some of the issues you will need to know about.
Universal Principles
Firstly, all businesses, whether a limited company, sole trader or a partnership will be considered by the courts in a financial divorce settlement. This is because all business interests are deemed a matrimonial asset. This is even the case if you started or owned the company before you got married as it is viewed by the court as a potential income used to provide living costs for you and your spouse while you were married.
What the courts consider
When looking into the detail of your finances and circumstances, the courts will consider any children involved and their financial welfare. Consulting with family law specialists can provide guidance and ensure that the best interests of the children are prioritised. They will also take into account the existing and potential needs and responsibilities of both parties. Examples of this include any outstanding debts, shared financial agreements and housing requirements. They will also consider whether or not there is a pre-nuptial or post-nuptial agreement in place, although these are more informative than binding. The general rule of thumb of the courts is to divide all matrimonial assets equally, however there are a number of factors that can move away from this throughout the process.
What the courts do not consider
As a general rule, the courts do not consider the behaviour of either party when deliberating a financial settlement, unless it has been unusually and highly reprehensible, as the attribution of blame is not pertinent to the necessary objective of negotiating a financial deal
Employee directors
If you are an employee director, your position is basically the same as any other employee but with additional financial considerations to take into account, for example, bonuses, pension schemes and complex remuneration schemes. Calculating an accurate value of continuing income can make it more difficult to work out appropriate maintenance payments. However, as has occurred in the recent past, if it is discovered that one of the married parties has failed to reveal an expected rise in income, the court can revise maintenance payments upwards.
It is not uncommon for one of the separating spouses to have given up their career in order to raise children, allowing the other spouse to concentrate on the business side of things. In such circumstances, the spouse who sacrificed their career is entitled to their fair share of the business and its assets and income. They will also be entitled to a portion of their pension when they retire. Issues involving foreign domicile or foreign property can also provide further, additional complexities.
Equity directors
The situation with equity directors going through a divorce is more complex because they have a controlling or substantial shareholding in the business, and often so does their spouse, meaning there are normally several additional areas of potential dispute.
For example, there is the question of the overall value of the business, whether the value of the company depends on one particular person, the value of each spouse’s shareholding, who owns the business’s assets, and whether the couple intend to continue in business together. In addition, there could be any tax issues arising too.
Further complexities revolve around issues pertaining to employment law and non-compete clauses and whether any proposals will create problems with the bank over guarantees going forwards.
Whatever kind of director you are, to find out where you stand with your company, it is worth speaking to a family solicitor with experience in business and divorce.