The impact of a separation – the rights of a business owner.

The breakdown in the personal relationship of a business owner can cause an immense impact, not just in terms of concentration and distraction, but in terms of a possible negative financial impact on the business.

If as a business owner, you are married (or have entered into a civil partnership), then on a divorce, your spouse can make wide ranging financial claims that can have an impact on the business.

The first exercise will be to work out what your interest in the business is worth, as the Court will need to know what money is going to be available to meet the needs of both parties and any children of the family. You will have to disclose detailed information relating to the business, including the company accounts, plans for the future and any proposed sale. If that information is insufficient, then the Court can appoint an expert to produce an independent report as to value, liquidity and/or likely future income.

The divorce Court has huge discretion to make appropriate orders concerning business interests, including a sale or transfer or the other spouse. Those orders could hugely affect the business, either directly, or by requiring you, as the owner, to realise large sums of cash to pay a lump sum order.

If you are concerned about that risk then a post nuptial agreement between you and your spouse could assist in setting out what the two of you agree will happen to the business on a later divorce.

If you are not married but simply living with your partner (known as cohabitees), then the situation on a split is very different. Your ex cohabitee will have no personal claims against your business, unless they were involved in some way and may be able to pursue a civil claim, or they have a claim to an interest in a property used for the business. If so, they would either have to show that it was agreed they had a share in the equity of the property or that they believed they did and acted to their detriment upon that, for instance by making a capital contribution.

There have been various efforts to extend the right to make personal financial claims following a split to cohabitees. Campaigners believe that after a relationship lasting at least several years, it would be fair for capital and/or income to be shared. But arguably it would not be fair to force legal obligations upon couples who have deliberately chosen not to get married. Despite a Law Commission report recommending a change in the law, the Government show no signs of wanting to push forward with such legislation.

Judith Fitton is a partner in our Family department.

The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update.

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