What are the potential issues experienced when a divorce threatens to break up a family business?

Divorce in the UK

Currently there is such a high rate of divorce in the UK meaning that many couples are having to go through the process of dividing up the assets gained during their married life. The most common issues which are experienced by couples divorcing are financial issues surrounding the shared marital home and issues surrounding the custody of their children. However, the effect of divorce on the family business is an issue which is becoming increasingly commonplace.

The family business

A huge amount of the UK workforce currently works in family owned businesses – in fact the largest single group of employees in the private sector work in a family owned business.

Is there a definition of a family owned business?

There is no standard structure for a family owned business as it can consist of anything from small newsagents to certain giants of the high street with huge amounts of annual turnover. One of the most common things, however, in most family owned businesses is the way the shares have been split. Often the shares will be split between a husband and wife as this is the most tax efficient option when the business was started.

However, this does clearly increase the potential for problems when a couple both owning shares in the family business go through divorce proceedings.

What issues will be experienced by a family business following a divorce?

The main issues concerning what will happen to a family business following a divorce will usually fall into one of the following categories:

  • The potential sale of the business

  • The contribution made to the business

  • The potential restructuring of the business

  • The appropriate valuation of the business

The potential sale of the business

One of main issues which will immediately spring to mind when a couple both owning shares in a business get divorced is the issue of whether the court will order the business to be sold and the profit split equally between the two former spouses in the divorce settlement. However, it is extremely unlikely for the court to do this with a restructuring of the business often the most viable option enabling certain funds to be released for the benefit of one of the spouses.

The contribution made to the business

One particular issue which is often raised is that of the situation whereby one partner considers that he or she has made a greater and more significant contribution to the business. This will most often occur when one partner feels that due to their particular business skill and entrepreneurial flair is what has made the business such a success and that the involvement of the other partner has really been minimal and only applies to their name. However, this is only likely to give rise to that partner receiving a greater share of the business if they amount to genius and where the assets are of a very significant value.

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For more information on:

  • The potential restructuring of the business
  • The valuation of the business
  • Can a spouse run into issues if this step is not taken?
  • Important that the individual wishing to retain the business values the business correctly