Relationship breakdown and business assets

The beginning of the new tax year often coincides with the end of the accounting year for businesses that are owned by one or other of a couple in relationship breakdown.  Where there are business assets that are marital assets, there is a need to fully understand the capital value of the business and the income stream the business represents.  This also involves understanding how easily capital can be extracted, to balance the marital asset base, and the tax implications to take into account in the valuation and extraction process.

Using the litigious process to look at the business asset during a relationship breakdown is sometimes the necessary route, if a cooperative approach is proving difficult.  However, if there can be cooperative discussion, this can often assist both parties to more useful solutions regarding how the business asset value is identified and fairly shared. 

The common issues that arise with businesses in the valuation process:-

• One party believe the business has a higher value than the other.  There can be considerable suspicion that the party retaining the business has a vested interest in minimising the value.  Conversely, the business owning party may feel that the other is simply unrealistic about the true value of the business. 
• The tax implications on the different options need to be understood.  This may involve looking at how the value is extracted.  The process is also likely to involve expert accountancy and tax advice. 
• The business may be a main source of income for either, or, both parties, so retaining the business in a working format may need to be a priority.
• Even if the value is understood, the liquidity of the business may impact the value shared.  There may also be owners of the business, other than the couple involved in the relationship breakdown.  If there can be a consensual discussion of what works best for the business, more and better options can be accessed.  This requires a good will approach from the business owners. 
• Both parties may have shares in the business, or, may be involved in the business together.  It can be very difficult to restrict tensions from the relationship breakdown overflowing into the running of the business.  If tensions are not contained, the business can be severely impacted short, medium and long term. 

Finding the right approach

Any approach that increases entrenchment, polarisation and conflict, is likely to be unhelpful.  An approach, however, that focuses on a range of options and solutions with shared gathering of information is likely to be more successful in the majority of cases. 

Using the Collaborative or round table approach

Both of these approaches focus on discussion in the room to identify the issues and look at styles of resolution.  The Collaborative process requires the solicitors and the parties to look at overlapping common interests rather than conflict.  The round table approach allows for discussion with litigants in person where one party chooses not to have a solicitor.  Alternatively, if both parties have a solicitor, then the round table process may still be more appropriate, where, for example, one of the parties solicitors is not Collaboratively trained.  With either approach, discussion around the table allows for a quick identification of queries or concerns which enables a more speedy and effective identification of the options on how to value and what to take into account.  With either approach, both parties can be fully supported and have the assistance of the respective solicitors to manage the tensions in the room.  Either process can also focus down on options and solutions which are important to the parties, whether or not these would involve a more standard approach that could be adopted by the court in a litigious process. 

Bringing in experts to overcome an impasse

Experts can be used in a multiplicity of ways.  The expert accountancy or tax view may be needed to give indications on value, tax, extraction of capital and advice on bespoke outcomes being considered by the parties. Accountants and tax experts can be brought into the room or can be asked to provide written advice, or a mixture of both.  The accessibility of the expert is agreed as part of the process so can be immensely flexible to the needs of the parties.  Separate to this kind of specialist advice, there can also sometimes arise a difference of opinion, in legal terms, as to what represents a fair value and a fair division of that value.  When this arises it is possible to use a neutral specialist Counsel to come into the process and assist the parties to overcome any impasse on what is represented by a reasonable distribution of the marital assets, including the business asset.  This neutral advice can be accessed in a discursive way with Counsel being provided with the perspective of each party and talking through, in a neutral way, the likely outcomes if the matter was progressed through the court litigation process.  Often, a Counsel used in this way, will also be sitting as a family law Judge so will have direct experience as to what she/he would be ordering should that case have come before the court.  This allows the parties to have the ability to look at alternative outcomes but still be able to reach agreement on division in a way that benefits the parties themselves.  Obtaining neutral advice in this way makes for a very speedy resolution process. The steps and the timing are in the hands of the party rather than predetermined in the court process which is often subject to considerable delay.

How we can help

Contact our family law team.  Prettys family team are multiskilled in their approaches to family matters.  The team consists of trained mediators, Collaborative lawyers with years of experience in round table working and experienced litigators.  We listen to your needs and work with you to agree an approach that brings the most likely chance of success.  You can contact me directly at ghall@prettys.co.uk and you can view our full range of services in more detail here.