10 top tips for business owners facing divorce

top 10 tips for divorcing business people

10 top tips for business owners facing divorce

Divorce is never easy, but it can be more complicated when you’re a business owner. Partner Fiona Wood, who is particularly accomplished at dealing with divorce cases where there are substantial and complex assets, offers her advice.

1 Don’t panic! The divorce process is NOT designed to damage a business so that it is no longer viable. The income produced by the business will often be the business owner’s main source of income both before and after divorce. This income may also need to fund child maintenance payments and sometimes spousal maintenance payments after a divorce, so damaging the business would be counter- productive.

2 Your business, along with your and your spouse’s other assets, will be considered a relevant asset within the divorce proceedings. You will need to provide information relating to the business, even if you are not the sole owner. If there are other business owners you should inform them of your divorce, if you have not already done so.

3 Your business is likely to be valued by an independent accountant, instructed jointly by you and your spouse, within the divorce. They will look at the value of your shares, how much money, if any, you can raise through the business to assist with the divorce settlement and the sustainable income that can be taken from the company going forward.

4 It is the net value of your shareholding that will be taken into account, after notional costs of sale and tax have been deducted. Whilst you may not be selling your shareholding, your shares will be valued on the basis that you are selling them.

5 Valuing a business is an art not a science, so different accountants have different approaches, which results in some accountants providing more optimistic valuations than others. It is therefore important to take advice on which accountants would be most suitable for your situation.

6 If your spouse also has shares in the company, it is unlikely that you will both remain shareholders in the company after your divorce. A few divorcing couples agree to continue running their business together and to both remain shareholders after they divorce. However, in the majority of divorces one spouse transfers their shares to the other as part of the divorce settlement.

7 The date of separation may be relevant if one spouse is to transfer their shares in the company to the other. If shares are transferred from one spouse to another in the tax year of separation, the Capital Gains Tax liability that arises on the transfer is paid by the spouse who receives the shares as and when they sell the shares in the future. If the shares are transferred from one spouse to another after the tax year of separation, the spouse who is transferring the shares will have to pay any Capital Gains Tax liability that arises on the transfer shortly after the transfer.

8 Do not be tempted to transfer your shares in the company to a third party, in an attempt to reduce your spouse’s claims on divorce. Any disposals of assets that are at an undervalue can be set aside by a divorce judge, and if the disposal took place within the 3 years prior to the divorce the onus is on the spouse who “got rid” of the asset to prove that it was not at an undervalue.

9 Just because you have a business does not mean that your divorce settlement will end up being argued about in court. Once you have an appropriate valuation report a financial agreement can then be negotiated, without the need for a judge’s input.

10 Make sure that you obtain legal advice from an expert family solicitor who regularly deals with divorce cases where there are businesses.

If you are concerned about any of the issued raised here, please get in touch today. We are here to help.

The Villiers’ divorce

Charles Villiers divorce

The Villiers’ divorce

There has been a lot of coverage in the press recently regarding the divorce of Mr and Mrs Villiers. It is a complex case, legally, which has involved many court hearings, both in England and in Scotland. The case highlights the issues that can arise when a couple are able to issue divorce proceedings in more than one legal jurisdiction, in this case in England and in Scotland. It also highlights the fact that the law is open to interpretation by judges and therefore it is not always easy to predict the outcome of court proceedings and that a negotiated settlement is preferable where possible.

 Partner Fiona Wood examines the issues.

The couple married in1994, moved to Scotland in 1995 and lived there throughout their married life. They separated in 2012, with Mr Villiers remaining in Scotland and Mrs Villiers returning to live in England.

Issuing divorce proceedings

The couple then both issued divorce proceedings, Mr Villiers in Scotland and his wife in England. There were court hearings regarding which country should deal with the divorce. Mrs Villiers would receive a greater financial settlement if the divorce was dealt with by the English rather than the Scottish courts, so both were keen to divorce in their country of choice.

Both countries’ courts agreed that the divorce should be dealt with in Scotland, as that was where the couple had last lived together. However, whilst the divorce proceeded in Scotland, Mrs Villiers was able to apply in England for maintenance under s27 Matrimonial Causes Act 1973, as Mr Villiers’ application in Scotland did not include an application for spousal maintenance. S27 allows one spouse (where still married) to apply for maintenance if the other spouse has failed to provide them with reasonable maintenance. An order was made that Mr Villiers pay his wife maintenance, until their financial settlement was dealt with, of £2500 per month plus £3,000 per month to fund her legal costs. Mr Villiers appealed this decision.

EU law

The appeal went to the Supreme Court. Mr Villiers argued that it was not appropriate for a divorce to take place in one part of the UK, whilst the issue of maintenance is dealt with by another part. Much of the legal argument dealt with EU law, as the hearing took place before Brexit. The husband lost his appeal, with two Supreme Court Judges agreeing with him and three agreeing with his wife. The issue was not clear cut.

There was a further hearing in England last month, where Mr Justice Mostyn concluded that Mr Villiers should not have to pay maintenance to his wife, due to Mr Villiers’ financial position. Mr Villiers is now hopeful that they will return to court in Scotland and finalise their divorce and financial settlement there.

Brexit

Now that Brexit has occurred, the law governing the issue of maintenance, which was considered by the Supreme Court, has changed in England as EU law is no longer relevant. Now the English court has the power to impose a stay of proceedings issued in England, if there are other proceedings concerning a marriage in another country, if it considers it is in the balance of fairness to do so. Had Brexit taken place earlier the outcome of the appeal to the Supreme Court may have been different. Certainly, Mr Justice Mostyn is of the view that the Scottish court should have dealt with the couple’s financial claims.

If you are affected by any of the issues raised here, it is important that you take specialist legal advice. Please get in touch today. We are here to help.

Do I have to pay tax on my divorce settlement?

do I have to pay tax on my divorce settlement

Do I have to pay tax on my divorce settlement?

Some people believe that as a divorce settlement takes place between a married couple tax is not payable, but that is not always correct. Partner Fiona Wood, who is particularly accomplished at dealing with divorce cases where there are substantial and complex assets, explains.

The type of assets that you and your spouse have and when you and your spouse separate will determine whether tax is payable and when it is payable.

How is tax factored into a divorce settlement?

When looking at the value of matrimonial assets, it is the net value that is relevant. Therefore if you have assets that will attract tax, usually Capital Gains Tax, when they are sold or transferred between spouses, the tax needs to be calculated and taken into account when calculating the total assets before you decide how they should be divided between the couple.

For example, if a couple jointly own a second property, a holiday home, which is worth £300,000, but if sold they would each have to pay Capital Gains Tax of £30,000, the value of the property taken into account within the divorce is £240,000.

Which assets attract tax?

The family home does not usually attract tax when it is sold or if transferred to one spouse, provided that it is the couple’s main residence, as it will qualify for Private Residence Relief in most cases.

Holiday homes or investment properties, if they have increased in value since they were purchased, are likely to result in the payment of Capital Gains Tax when they are sold or transferred to one spouse, as will some investments. Shares in private limited companies are also likely to attract Capital Gains Tax if sold or transferred to one spouse, although some tax reliefs may be available to reduce the tax payable.

With regard to payments of child maintenance and spousal maintenance, these are paid out of income that has already been taxed, so the recipient of these does not have to pay tax upon them.

Does  the date the assets are sold or transferred impact the tax payable?

If an asset is sold to fund a divorce settlement and tax is payable on its sale, it does not matter when it is sold, the tax will have to be paid. Given that we all have annual allowances for Capital Gains Tax there may be some advantage to assets being sold in different tax years, if a few assets are being sold within the divorce that attract tax.

Where an asset is transferred from one spouse to the other, if the transfer takes place in the tax year of separation, the total gain is retained by the spouse who is retaining the asset and they will pay the tax when they sell the asset at a later date. If the asset is transferred after the tax year of separation, the spouse that is transferring the asset will have made a disposal for Capital Gains Tax purposes and will have to declare this gain and pay the tax. In this scenario it is important that the spouse who is transferring the property has sufficient cash from which to pay their tax as part of the divorce settlement. When the transfer takes place does not reduce the tax payable, but it dictates when the tax has to be paid and which spouse has to pay the tax.

The date a couple separate can be very important from a cash flow perspective when looking at their financial settlement. Some couples agree to transfer properties and shares in companies before they have reached a financial settlement, so that the transfers take place in the tax year of separation, thus avoiding having to find funds to pay tax liabilities at that juncture. Transferring the assets before a financial settlement is agreed does not change the financial claims that each spouse has within the divorce.

If you are experiencing problems in your marriage and have assets that could attract a payment of tax if transferred to your spouse or sold to achieve a divorce settlement, you should take advice from a specialist family lawyer and an accountant, in order to see what the likely financial settlement will be if you divorce and what tax is likely to be payable as a result of this.

If you are concerned about any of the issued raised here, please get in touch today. We are here to help.

How are cryptocurrencies and digital assets treated on divorce?

cryptocurrency and divorce

How are cryptocurrencies and digital assets treated on divorce?

How are cryptocurrencies and digital assets treated on divorce? Partner Fiona Wood examines the issues.

In recent months Bitcoin and other cryptocurrencies have seen a resurgence, with the value of many of these digital currencies now being worth more than ever. The value of the industry itself was worth more than $1trillion in January 2021 and is on course to double in value by the end of March. This has led to a rise in people turning to digital investments during the lockdowns, with many more investors purchasing these rather than more traditional stocks – my colleague Jim Truscott of Beyond Group‘s specialist corporate firm Beyond Corporate has recently commented on this.

So how will digital investments be treated if you are going through a divorce?

Division of assets

Despite having no physical form, there is no difference between how cryptocurrency is treated from other more traditional investments, should a couple divorce. These and the other assets owned by the couple will be divided between them, considering various factors, including the couple’s and their children’s reasonable needs, and the specific circumstances of their case.

However, due to the nature of these assets there are several potential issues that may arise, which are specific to cryptocurrencies, during a divorce. Those issues include:

Issues regarding disclosure

There are concerns that due to the relative anonymity of cryptocurrency trading that a spouse could exploit this to try to hide their assets. In divorce each spouse has a duty to provide full disclosure of their assets. Most of those who hold cryptocurrency do so via a digital exchange, also known as a digital wallet. These wallets hold ‘keys’ and these keys are a sequence of letters and numbers which then correlate to the amount held in the account ledger. The benefit of holding keys in a digital wallet is that a person is able to easily see what they hold, as well as allowing them to buy and sell as they wish. These digital wallets provide records of what cryptocurrencies a person holds, the trades they make and the value of their holdings. This is what will need to be provided in disclosure.

It should be noted that if an asset has not been disclosed, it may be obvious from the other disclosure provided. A judge has the power to infer that there are undisclosed assets, if a reasonable explanation is not provided regarding where money has gone. However, there is no guarantee that all undisclosed assets will be traced. The nature of cryptocurrencies makes these assets easier to hide for those who are not prepared to abide by the law and provide full disclosure.

Issues regarding valuation

Unlike traditional stocks, the values of cryptocurrencies are very volatile and can swing dramatically, with 500% swings within a week not uncommon. This can lead to challenges when valuing assets in divorce proceedings.

Cryptocurrencies will be considered more risky assets in divorce because of this. A judge will often consider it appropriate that both spouses receive some of the more risky assets, so that that they are both impacted by large increases or decreases in their values, thus sharing the risk.

Issues obtaining a freezing order

If one spouse is trying to get rid of an asset in order to frustrate the other’s financial claims in divorce proceedings, you can apply for a freezing order to prevent this happening. This is a difficult application to make successfully regarding cryptocurrencies, but there have been cases where the court has made a freezing order against the digital wallet and the digital exchange who operated the wallet have fully cooperated with the order.

Cryptocurrencies are potentially more problematic to deal with if you divorce. However, the world of cryptocurrencies is a growing one and is likely to feature in an increasing number of divorces.

If you are concerned about how cryptocurrencies owned by you or your spouse will be dealt with if you divorce it is important that you take specialist legal advice. Please get in touch today. We are here to help.

First published in Business Insider North West
McALISTER FAMILY LAW
MCALISTER HQ LOCATION:

Second Floor, Commercial Wharf

6 Commercial Street
Manchester, M15 4PZ

GET IN CONTACT
SOCIAL MEDIA:
HOW CAN WE HELP?
HOW CAN WE HELP?

If your enquiry is urgent please call

+44 (0)333 202 6433