Disclosure for business owners in a divorce

Emma Lawler

By Emma Lawler

Every business is different and some of them have unique qualities.

It is, therefore, essential that if you are going through a divorce or separation the court is made aware of the issues that might affect your business and how it should be treated in a divorce.

The first stage of a divorce or separation involves an exchange of financial information called “financial disclosure”.

This is usually done on a voluntary basis through solicitors, but can also be ordered by the court if you are involved in court proceedings.

It is sensible to gather together all the information you will need at the outset. You will need to provide:

  • Copies of your accounts for the past three years
  • Your last three years’ tax returns
  • A schedule of all land and buildings owned by the business
  • Details of any pension schemes you run through the business, including the nature of the scheme, assets held within the scheme, and contact details of the pension trustees
  • Details of the shareholders (if applicable)
  • A copy of any shareholder’s agreement or partnership agreement
  • Details of any director’s loan accounts
  • Directorships for the past 12 months
  • Details of any material changes to the business since the last set of accounts were prepared
  • Details of any benefits in kind you or your spouse receive
  • Is your spouse employed by the business? You will need to provide relevant details

It also helps if you can provide a detailed description of the nature of your business and any relevant issues that you feel have, or will have, an impact on its value in future.

Outlining the income the business is able to produce now, and in the future, will help.

Describing your own day-to-day involvement as well as your spouse’s involvement (if applicable) is also useful. Your solicitors will often liaise with your accountants to request relevant information.

Once basic financial information has been exchanged, it may be necessary for a surveyor to be instructed to value property and/or land, if owned by the business or your pension fund.

It may then also be necessary for an independent accountant to be instructed on a joint basis by you and your spouse to value the business and consider issues such as the ability of the business to fund a settlement – either by way of a lump sum or maintenance payments, or both, the impact of taxation, whether any discount should be applied for a minority shareholding, or whether a “quasi partnership” exists (in which the court assumes all business owners will have equal standing regardless of their shares due to the way the business is run).

The accountant can also be asked to consider other issues which you may feel are relevant.

If you do have a report from an accountant, it is often helpful to then run through it with your own accountant.

After a report has been prepared, both parties have a short period of time in which written questions can be put to the expert if clarification needs to be sought or challenges made to the basis of their findings.

The cost of the report is usually shared equally between you and your spouse.

The duty of disclosure is ongoing during a divorce. Therefore, if you are aware of a material change in circumstances for you or your business, you must let your solicitor know.

Failure to do so could result in the court setting aside your settlement at a later date.

 

Emma Lawler is a Resolution-trained mediator and confident advocate with Langleys Solicitors.

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