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.

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.

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