Love, Loss, and Legacy: Dividing a Family Business on Divorce

Hannah Boddy, Solicitor at Manders Law, considers the key issues affecting a family business on divorce.

Introduction

Navigating a divorce is always complex, but when a family business is part of the equation, the process can become especially thorny.  Decisions about ownership, control, and the future of the business can be particularly challenging—emotionally and financially. A family business is often more than just an asset; it represents hard work, financial security, and in many cases, a legacy meant to be passed down through generations. Understanding how to fairly divide a shared enterprise can make all the difference in ensuring a smooth transition for both parties and the company.

Navigating the division or continued management of a family business post-divorce requires careful consideration of legal, financial, and emotional factors. The approach taken will depend on whether the business is classified as matrimonial or non-matrimonial property, how its value is assessed, and what practical options exist for division or continued co-ownership. This article explores some of these crucial aspects.

Matrimonial vs. Non-Matrimonial Property in the Context of Family Businesses

Understanding the Difference

In a previous article we explored the difference between matrimonial vs. non-matrimonial property, particularly in relation to post-separation assets. This article focuses on how these principles apply to family businesses.

Key Definitions

  • Matrimonial Property: Typically, this includes assets acquired during the marriage, such as the family home, savings, and pensions. A business can also fall under this category if it was created, acquired, or significantly expanded during the marriage. Courts will consider both direct and indirect contributions to determine whether a business is part of the marital “pot.”
  • Non-Matrimonial Property: This usually refers to assets owned before marriage or those inherited or gifted to one party during the marriage and which have not been “mingled”. “Mingling” can happen in a number of ways the most common of which are as follows:
    • Pre-marital assets (owned by one party before the marriage) are combined with joint assets, such as putting money from an inheritance into a shared bank account.
    • One party’s assets are used for the benefit of both, such as using personal savings to buy a family home.
    • Joint contributions are made to an asset that originally belonged to one party, like making mortgage payments together on an investment property owned by one partner before the marriage.

In the context of a business, even if one party was the original owner, the business may be classified as matrimonial if the other party made direct or indirect contributions leading to its growth, and “mingling” could occur in several ways, for example:

  • investments being made into the business from a joint bank account or inheritance
  • Business debts being serviced with joint personal finances.
  • If one party personally guarantees a business loan using marital property such as the family home.

Once a business is deemed a matrimonial asset, the next step is deciding how to fairly divide it. This is where experienced specialist solicitors can provide invaluable guidance.

Apportionment: What Should Be Shared and Why?

Legal Framework

In England & Wales the court’s focus is on fairness rather than strict equality and it is obliged to consider the factors set out in Matrimonial Causes Act 1973 (Section 25), in making financial orders upon divorce. The factors include:

  • Income, earning capacity, property and other financial resources of each of the parties.
  • Future financial needs, obligations and responsibilities, particularly where children are involved.
  • the standard of living enjoyed by the family before the breakdown of the marriage.
  • the age of each party to the marriage and the duration of the marriage.
  • any physical or mental disability of either of the parties to the marriage or any children.
  • the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family.

The court may also consider any other factors which it believes to be relevant in any specific case. These factors may include:

  • Preserving a family business for ongoing income and family legacy.
  • Each party’s financial and non-financial contributions to any business/assets.
  • The way the business/asset was handled and managed during the marriage.

Factors That Influence Apportionment

Both direct and indirect contributions play a role in how a business is divided.

  • Direct Contributions: These include financial investments and active involvement in the business, such as management, marketing, or client relations.
  • Indirect Contributions: These are less tangible, but just as important. A party who managed the household, raised children, or provided emotional and strategic support (such as networking or informal business consultations) may have indirectly contributed to the business’s success.

If one party can be shown to have contributed—directly or indirectly—the business may be considered a matrimonial asset and subject to division. The extent of this division is assessed on a case-by-case basis based on evidence.

Illustrative scenario for indirect contributions

Emma and James were married for 15 years. James owned and operated a high-end catering business, Gourmet Events Ltd, which he built during the marriage. Prior to giving up her job to raise a family Emma worked for a very successful marketing company which had many well-known clients, through her career she had obtained an impressive media following.

She frequently attended charity galas, social clubs, and events at which she would introduce James to high-profile clients, including celebrities and well-known event planners, leading to lucrative contracts. A significant portion of the Gourmet Event’s client base came from Emma’s social connections.

Emma also regularly posted about the business on her social media, attracting new customers. She encouraged satisfied clients who were also her contacts to leave reviews and testimonials which in turn improved the company’s reputation.

Although not an official employee, Emma helped organise and coordinate key events, ensuring successful execution and provided informal business advice and feedback based on customer preferences and trends.

By leaving her job in marketing to manage household duties and take care of their three children, Emma enabled James to dedicate himself to expanding the business.

During their divorce, James argued that Gourmet Events Ltd was solely his effort and should not be divided.

If the court had to determine this issue it is likely that Emma’s efforts would be considered to have directly contributed to securing clients, which in turn lead to a measurable financial benefit to the business. Without Emma’s support James may not have been able to grow his business in the way he did. As such the court would likely consider that the business should be subject to division if Emma and James can’t agree.

Matrimonial vs. Non-Matrimonial Growth

A key question in divorce proceedings is how to categorise business growth: was it due to joint efforts, or was it the result of individual work post-separation?

Growth During the Marriage

If a business grows significantly during the marriage and this growth can be attributed to joint efforts or shared resources, it is generally considered a matrimonial asset. For example, if one party founded a tech company before marriage but saw its revenue double due to the other party’s financial investment and networking, the increased value would likely be added to the “marital pot” .Conversely, if a business was brought into the marriage by one party and grew solely due to market conditions or the individual efforts of that party, it may remain a non-matrimonial asset.

Growth After Separation: ‘Continuum vs. New Ventures’

Once a couple separates, a business may continue to grow before financial matters are fully settled. Courts often assess whether this growth is a continuation of efforts made during the marriage or a new venture based on factors such as:

  • Were any marital resources (money, contacts, time, or expertise) used to generate the post-separation growth?
  • Did both parties contribute—financially or otherwise—post-separation?
  • Has one party alone invested significant time, money, or effort into the business post-separation?

If growth results from one party’s independent efforts post-separation, it is often considered a “new venture” and is likely to be classed as non-matrimonial property.  However, if both parties contributed—even indirectly—the continuum approach is likely applied, making the growth part of the matrimonial pot.

A more in depth analysis of continuum vs new venture was provided in our previous article: Untangling the Knot: Navigating Post-Separation Assets in Divorce Proceedings

Important Note: That said, courts typically assess a business’s current value rather than tracking its value over time, a method more commonly used for pensions.

Practical Options for Sharing, Dividing, or Dissolving the Business

Once it is established that a business (or part of it) is a matrimonial asset, the next step is deciding what to do with it. Key challenges include:

  • Balancing emotional attachment with financial realities.
  • Determining fair compensation for non-financial contributions.
  • Ensuring an accurate and fair valuation of the business.
  • Managing potential tax implications of dividing business assets.
  • Preserving business continuity if one party retains control.

Look out for our upcoming article on how a business is valued in divorce proceedings and the various approaches available.

Top Tips
  • Seek professional guidance at the outset to determine whether the business is matrimonial or non-matrimonial
  • Be realistic and ensure that you have a full understanding of how to assess fair apportionment
  • Be open minded and actively explore practical solutions that protect both parties’ financial futures.

With careful planning and professional legal guidance, divorcing couples can navigate this challenge while ensuring financial stability and business viability. For an initial FREE consultation on any aspect of family law, call Manders Law on 01245 895 105 or email us here.

Note: this blog is intended to give an overview (rather than comprehensive guidance and advice) on your legal or financial position and is provided for information only. It is not an endorsement of any product or service provider.

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