COLUMN – Divorce and the small business owner

Divorce creates uncertainty, and this can be especially true for small business owners.  With some early intervention and proactive management, there is no reason why you shouldn’t be able to carry on running your business beyond the divorce. 

An experienced accountant’s input will be invaluable

Many small businesses are an income provider rather than a capital asset.  Your company accountant should be able to give some guidance at an early stage as to any capital value the business may have.  Approaching the accountant for this information as soon as possible may avoid having to instruct expensive experts further down the line. 

Further, separating spouses owe a duty of full and frank financial disclosure to one another.  Your spouse will be entitled to see a range of documents relating to your business, including your accounts, tax returns and bank statements.  Your accountant will be instrumental in getting together the correct documents and ensuring any information which is provided is clear, concise and accurate.     

Your spouse may have specific questions about the business on a range of issues.  An experienced accountant will answer questions about the financial side of the business clearly and accurately on your behalf. This will reassure both parties and reduce conflict.  If questions raised cannot be answered clearly, this can create tension and suspicion which may increase legal costs and delay a settlement. 

Unlike most solicitors, some accountants work on a retainer with a fixed sum per year for services. You will be in contact more often with your accountant during a divorce and you may want to ask about any additional costs. 

 

Think about tax

If both spouses are shareholders in the business, the likelihood is that, as part of a financial settlement, one spouse will be looking to exit the business in return for a pay-out or offsetting.  

If shares need to be transferred, any transfer taking place within the same tax year as the separation will be treated as having been made on a ‘no gain/no loss’ basis and, therefore, as a general rule no Capital Gains Tax will be payable.  There are exceptions.  

Where a transfer of shares takes place after the year of separation, Capital Gains Tax may be payable and could have significant financial consequences.   

Whatever the size of the business, it is essential to take tax advice at an early stage when considering a divorce to ensure you can make informed decisions regarding your separation and any tax consequences.

ELLIE JONES

PARTNER / DIVORCE & SEPARATION

Ellie is a Partner and Chartered Legal Executive specialising in Family Law.

Ellie joined Sills & Betteridge in 2010 and has worked in the Matrimonial Department since September 2011.