There’s no denying that divorce can be one of life’s most challenging events, but for SME owners, it brings a unique set of hurdles. Beyond personal toll, the fate of your business – often built on years of hard work and ambition – can hang in the balance.
From asset valuations to financial settlements, divorce involving business ownership can be complicated.
James Maguire, founder and managing director at Maguire Family Law, has spent over 30 years advising business owners through complex divorces. What’s more, having co-founded Maguire Family Law with his now ex-wife, Eimear Maguire, James understands firsthand how professional and personal dynamics can intersect.
His experience shows that while divorce may alter the landscape, with the right approach, your business doesn’t have to be a casualty.
The role of business valuations
The first hurdle for many SME owners is business valuation. How do you fairly assess the value of a business that is closely tied to both personal effort and financial resources? Courts often require a valuation to guide settlements, considering factors like the business’ assets, income, and potential future earnings.
Arguments like “it’s not worth anything because it’s not being sold” rarely hold up. However, issues such as liquidity, tax, and inherent business risk can heavily influence the real value.
For SME owners, this process can seem daunting. It’s important to understand that businesses may be seen either as capital assets to be divided or as income-producing sources for family finances. Sole traders may have their businesses treated as extensions of personal income, while limited companies are more likely to be seen as separate legal entities.
Additionally, having a professional team of legal, financial, and accounting experts is crucial to ensure the business is accurately valued. Without proper guidance, you risk undervaluing or overvaluing the business, potentially leading to unfair settlements or overlooking important tax, risk, and liquidity considerations.
Proactive strategies to protect your business
While divorce may often seem unpredictable, there are steps you can take to protect your business:
- Pre- and post-nuptial agreements
Historically underused in the UK, these agreements are gaining traction. They allow couples to agree on how assets – including businesses – will be divided should a divorce occur. Although not legally binding, they carry weight in court and provide clarity. - Shareholder agreements
For businesses with multiple owners, a shareholder agreement is invaluable. These agreements limit the transfer or sale of shares during personal disputes, ensuring that the business remains protected from external disruption. - Trust structures
By placing business assets into a trust, owners can separate them from personal ownership. However, it’s crucial that such arrangements are carefully structured to withstand legal scrutiny. - Clear financial records
Maintaining a clear distinction between personal and business finances is essential. Proper financial records not only simplify the valuation process but also reduce the potential for disputes during settlement negotiations.
What the family court considers
In financial settlements, the court will assess several factors, including:
- Length of the marriage: Shorter marriages often result in weaker financial claims for the non-contributing party.
- Contributions: The court acknowledges both financial and non-financial contributions, including efforts that support the business’ success.
- Financial needs: Courts aim to ensure both parties have adequate housing and income to meet reasonable living expenses.
- Business value: The court will consider the value of the business as an illiquid asset and assess how it impacts the overall financial settlement.
For SME owners, presenting transparent financial documentation is critical. Engaging experts early on helps ensure a fair settlement while minimising disruption to business operations.
The intersection of professional and personal
For James Maguire, balancing professional and personal dynamics isn’t just theoretical. Having co-founded Maguire Family Law with his ex-wife, Eimear, he has lived through the unique challenges of maintaining a shared business post-divorce.
“There’s no blueprint for this kind of situation,” James reflects. “But with clear communication and a shared focus on what matters, it’s possible to find a way forward.”
James and Eimear’s ongoing partnership demonstrates that businesses can remain stable throughout divorce proceedings and beyond. Resolving disputes swiftly is also crucial, as prolonged processes can distract SME owners from driving their businesses forward, and the impact can extend to employees and clients too.
Future-proofing your business: steps for long-term protection
For SME owners, business is not just an asset – it’s a livelihood for employees and a cornerstone of the local economy. Divorce may be a deeply personal matter, but its professional impact can be far-reaching. By taking proactive measures – like securing agreements, establishing clear financial boundaries, and consulting with experts – business owners can protect their investments and ensure their ventures thrive well beyond divorce proceedings.
Read more
Family business wealth and protecting it on divorce – When a couple divorce and there is family business wealth in common, protecting that wealth requires special consideration. Charmaine Hast of lawyers Wedlake Bell offers some analysis
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