With around 5.491 million small and medium-sized enterprises (SMEs) currently operating in the UK (as reported by gov.uk in 2024), it is unsurprising that a significant number of business owners will find themselves navigating the complexities of divorce.
Divorce is never easy, but for SME owners, the process involves more than just emotional closure. The future of your business, your employees, and your financial wellbeing may all be affected. Taking early, informed action is critical to ensure the best possible outcome.
Understanding how divorce impacts your business
Your business is likely one of your most valuable assets—and unlike property or savings, it often isn’t something that can be easily divided or sold. Yet in divorce, all assets, regardless of how they’re held, must be disclosed and considered when reaching a financial settlement.
Even if the business was founded before the marriage, its value may still be considered part of the “matrimonial pot,” especially if it has contributed to the family’s standard of living or if your spouse has played a role in its growth.
In other words: you can’t assume your business is off-limits in the divorce just because you’re the sole owner.
Valuing the business: A complex but crucial step
The first step is financial disclosure. This means producing two or more years of business accounts, management accounts, shareholder agreements, and potentially projections or cash flow statements.
But disclosure is just the beginning. In most cases, a single joint expert (SJE), usually a forensic accountant, is appointed to assess:
- The current value of the business or shareholding
- Liquidity and how value can be extracted (dividends, buybacks, borrowing, etc.)
- Future income potential, which may influence decisions around spousal or child maintenance
- Tax consequences of any proposed transfer of business interests or extraction of funds
Valuation can be contentious. One party may argue the business is thriving and highly valuable; the other may claim it is struggling or even worthless. The SJE’s report helps anchor negotiations in reality. Their duty is to the court, not either party, and their conclusions carry considerable weight in financial proceedings.
Different methods of valuation may apply depending on the type of business, such as net asset valuation, EBITDA or capitalised earnings, discounted cash flow and future maintainable earnings.
It’s essential to work with a legal team that understands how to navigate these methods and interpret reports, as well as how to challenge them if necessary.
Offsetting and liquid vs. risk-based assets
Because businesses are typically illiquid, courts often use an “offsetting” approach. For example, one party may retain the business, while the other receives a greater share of the family home or pension pot. However, this has to be done carefully to avoid unfairness, especially as business shares are typically considered risk-laden assets, unlike cash or property.
The Court of Appeal has emphasised that settlements must strike a balance between liquid and risk-based assets. It is therefore unlikely a court would approve a settlement where one party walks away with all the secure assets, and the other with all the speculative ones.
Dealing with spousal involvement in the business
If your spouse is a shareholder, director, or employee, untangling your financial and working relationship may prove challenging.
Consider:
- Will they retain shares or be bought out?
- Can their shares legally be transferred under your company’s articles?
- Will the business be able to afford a payout or buyback?
- What happens to their salary, pension contributions, or directorship?
You may also need to navigate the concerns of other shareholders or board members, especially if your spouse’s exit could trigger voting or ownership changes. These issues make it essential to consult not only family lawyers but also corporate and employment law specialists.
Minimising operational disruption
Divorce can be distracting, draining, and emotionally charged. For business owners, it’s crucial to stay focused on operational continuity and protecting the company’s reputation.
If both spouses are involved in the business, maintaining a united and professional front, especially in front of staff, is critical to preserving team morale and avoiding internal disruption.
Top tips for minimising disruption include:
- Delegating where possible during emotionally intense phases
- Clearly communicating any leadership changes to staff (when appropriate)
- Working with a therapist, coach, or mentor to help maintain focus
- Avoiding letting emotions influence day-to-day business decisions
The court will take a dim view of any attempt to manipulate the company’s financials to secure a better settlement. If your business is genuinely underperforming, be prepared to provide clear, independent evidence.
Considering tax early on
Selling or transferring shares, extracting dividends, or restructuring ownership can all trigger tax consequences, such as Capital Gains Tax (CGT), Stamp Duty, or Income Tax implications.
Working with a tax advisor at an early stage is key. Poor timing or poorly structured deals can result in unnecessary tax liabilities that reduce the overall value available to both parties. Remember: the goal is to achieve a fair outcome, not just for now, but for the long term.
Using non-court dispute resolution methods
Litigation should be the last resort. Court proceedings are often costly, stressful, time-consuming, and importantly, public. Since 2023, reporters can now attend and report on family court decisions in many cases. This introduces the possibility of reputational risk for you and your business.
There are now several confidential alternatives to court:
- Mediation – facilitated negotiation led by an independent mediator
- Collaborative law – roundtable discussions with both parties and their lawyers
- Private FDR (Financial Dispute Resolution) – a hearing held privately with a senior barrister or retired judge
- One Lawyer, One Couple model – where a specially trained lawyer advises both parties collaboratively (only available in certain cases)
These methods often lead to faster, private, more creative, and more amicable solutions that prioritise the business’s survival and everyone’s future financial wellbeing.
In summary: What SME owners should do first
If you’re a business owner facing or considering divorce, take the following steps as early as possible:
- Instruct an experienced family lawyer who understands business assets
- Engage your accountant and, if needed, a tax advisor to prepare disclosure
- Consider a forensic valuation to provide a realistic business value
- Assess your spouse’s involvement and how that can be resolved
- Think about liquidity and how funds may be raised or offset
- Explore non-court settlement options
- Prepare mentally and emotionally for the process
A carefully considered, well-supported divorce strategy can help you protect your business, minimise tax and reputational risk, and reach a fair settlement that works for everyone involved, including your staff and family.
