In the period immediately following separation or divorce, a persons attention is often focused on things that are immediate and pressing.

Questions like, who are the children going to live with? Who is going to keep the house? are often at the front of the mind for parties in a separation.

Whilst the questions above are important and it is appropriate that they initially take priority, when a business owner’s marriage or relationship breaks down, there can also be significant consequences for their business.

Under the Family Law Act, a person’s equitable interest in a business, whether held solely or with another person, is considered to be property for the purpose of dividing assets between parties to a separation.  This means that a business would be added to the pool of property that was available for division between the parties.

If, as is often the case, a person conducting a business decides that they are going to keep the business as part of the property settlement, this can effect the proportion of other assets in the property pool that they might receive.

For a business to be properly considered to be part of the property pool, it is necessary for either

  1. The parties to reach agreement about it’s value or
  2. For the business to be professionally valued by an appropriate qualified accountant.

How a business is valued for family law purposes depends on the structure of the business. Partnership or sole traders would not be valued in the same way as a business which is operated through a corporation, a Trust or a combination of both.

Generally, for small businesses, the value of the business will be calculated based on the resale value of assets and equipment held by the business, plus the value that can be attributed to the business’ brand or goodwill.

One of the primary considerations for valuers in determining the value that can be attributed to goodwill in a business is the profitability of the business over time.

A question often asked is “would someone be willing to purchase the business without the business owner continuing to be involved?”

If the answer to that question is no, then the value of the business for family law purposes is likely to be limited to the re-sale value of the assets and equipment.  If not, the professional approach will have to be undertaken.

So, if you are a builder, plumber or other trader who do not have employees and conduct their business as a sole trader, you are looking at the re-sale assets of the business.  If not and in any event, matters could be more complicated and it is for that reason why we suggest you seek the specialist advice of one of our operatives at Boston, Lincoln, Sleaford, Spalding, Newark or Grantham.

 

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