Dividing business interests when you separate if you were living together

If you and your former partner were cohabiting prior to Splitting Up and you also had a business together, your next steps may feel uncertain.

Business interests and their division are more clear cut when you are married, so in this article we look at what happens when you and your ex-business partner are splitting up and are not joined together in matrimony before you parted ways.

Can I claim a share of the business?

If you were married, then the answer is a clear ‘yes’ there are avenues to make a claim on your spouse’s business interests. However, you won’t have an automatic right if you were living together or cohabiting. There are exceptions though. For example, if you or your ex contributed to the business, or if you both had agreed you would have a share of the company. You may also be able to make a claim if you ran the business together as an unmarried couple. In England and Wales, to be successful in claiming, you will need to demonstrate a ‘beneficial interest’. In Scotland this is different, and you will need to evidence ‘economic disadvantage’ to make a successful claim.

Getting a business valued

If you want to pursue a claim it’s a good idea to get the business valued, although this does mean further expense. You may be able to agree on the value of the business with your former partner but there can often be a discrepancy in what two partners believe a company is worth. Hiring a professional accountant or business specialist will clarify the economic value of the business or business interest. During a valuation, several factors will be considered. This includes what the company produces financially in terms of profit and what the future profit forecast is.

A valuation will also consider any property the business owns and the structure of the business will also be evaluated. The structure of a business is determined by whether it is a limited company, an LLC, a partnership or a sole trader. With the latter, valuation is often easier as there is one owner who is liable for the assets of the company and its debts, and there are no other shared interests. Limited companies can be more challenging to value, especially if there is more than one owner. The courts endeavour to reduce the impact of divorce on shareholders as much as possible.

Disputing the value of a business

The partner who is retaining the business can undervalue it to ensure they do not have to part with more money in the settlement. On the other hand, the partner making a claim may over value the business to secure as much as they can in a financial resolution. This can often lead to a stalemate where intervention is needed to reach a conclusion. Mediation is one course of action. It involves a third party working with couples to reach a solution. In a financial mediation, the process usually takes up to four meetings. Both parties will need to attend an initial meeting called a MIAM which is around £120. Couples will also need to disclose all their financial details during the sessions. It is a route often cheaper than going to court to resolve matters.

Summing it up

Many people still believe that ‘common law marriage’ holds legal weight. The fact is, it doesn’t, it is more a term used to describe the social status of a couple. It’s useful to know when you own a business with an ex though as you may think you have an automatic claim on their business interests. As with married couples going through a divorce, it is always best to try and resolve differences between parties, as this will prevent a protracted court process and further legal fees.