Starting a business during divorce proceedings

When you are starting a business, it should be an exciting time where you have a lot to look forward to. However, if you are going through divorce proceedings, this can be a doubly unsettling and stressful time.

The divorce proceedings can cause you a huge distraction, which can affect the productivity of your business, but you also need to be able to protect your business financially.

business during divorce proceedingsThe divorce settlement takes into account any financial assets that have been acquired during your marriage, so if you have already started up your business, this is likely to come into the sharing of the assets. 

In many cases, spouses receive a percentage of the business value as part of the divorce, even if they have had minimal involvement in setting up and running the business. In some cases, the spouse will argue that they contributed in other ways, so that the business was able to succeed and are therefore due to a share of the value.

There are some ways that you can protect your business, such as:

Don’t make your spouse a company director

When you set up a business, there are tax benefits that can be gained by naming a spouse as a director or employee. However, if you do this, they can use it as evidence that they had any involvement in running the business.

Keep your business and household finances separate

Having a clear separation between your business and household finances will help to show that the two sets of finances are not overlapping and should be kept apart in divorce proceedings.

Sign a pre-nuptial agreement

It may be too late for this in some cases, but entrepreneurs should consider taking out a pre-nuptial agreement when they get married to show that your spouse agrees that they do not want to have any financial claim to money that is in your business.

Find a good divorce solicitor

Finding a divorce solicitor who has experience working with entrepreneurs who are going through divorce proceedings will be hugely beneficial to get the best outcome in terms of protecting your business. The divorce courts will assess whether your business is a ‘matrimonial asset’ that is to be divided but your solicitor should be able to predict what the court will decide, based on the specific situation and also their experience in previous divorce settlements.

The courts will look at details such as when you started your business in relation to your marriage and also how much involvement your spouse has had with your business. They may not have financially contributed towards your business, but the court may decide that your spouse made career sacrifices of their own, to support you to enable you to run your business.

If you set up the business prior to your marriage, they will also look at whether the value of the business has grown in that period. They might even consider whether you co-habited before your marriage and take that time into account rather than from the wedding date.

Other options

If the courts decide that your spouse is entitled to a percentage of your business value, one of the options that you have is to off-set other assets against the value of the business. For example, you could agree to let them have a larger percentage of the value of the house or offer other assets to enable you to keep your business out of the divorce proceedings. Of course, this could depend on how amicable the divorce is and whether your spouse sees more value in getting shares in your business, for example.