If the value of a business you own goes up or down between the time you separate from your partner and the completion of your divorce, you should disclose this so the information can be incorporated into the financial settlement which will be reached at the conclusion of the divorce. It is important to ensure that your soon-to-be ex is fully informed of changes in the value of big assets.
Full disclosure of your financial situation is a legal requirement during divorce, and if it later comes out that the value of your business increased after you separated, and you did not disclose this, it may invalidate the settlement. Conversely, if you have hit a run of bad luck in your business and the value has gone down, you will want to ensure that this too is taken into account so you will not be paying over-the-odds.
However, the significance of any such fluctuations will be limited if the overall value of the business is low, and therefore unlikely to make a meaningful difference to the overall settlement and to meeting each partner’s reasonable financial needs. In that situation, the family courts may take a greater interest in any assets acquired or businesses started during the period between separation and the start of the divorce, in order to ensure that reasonable financial provision is made for each party.
The family courts often also take into account how much effort the business owner or operator has made to keep the business afloat and increase its value or profitability during the period of separation. If such efforts can be demonstrated, and this has resulted in the value of the business increasing, this may mean that the other partner will receive a smaller share in the value of the firm since the increase in value was clearly not because of their efforts or contributions during the marriage.
Why this matters
When spouses separate and proceed toward divorce, the valuation of business assets can become one of the most complex and contentious aspects of their financial settlement. A common issue arises when the value of a business changes between the point of separation and the eventual divorce proceedings. Understanding how such shifts are treated in law requires a closer look at how the courts assess assets, what factors influence valuation timing, and how fairness is interpreted in relation to business interests.
When couples divorce, their assets are divided – either by mutual agreement, mediation or (occasionally) the intervention of a family court judge. This will, of course, include any businesses wholly or partly owned by one – or both – of the spouses. A revenue-generating business is a valuable asset. But it is more complicated one than a bank account or a house because its value relies on it continuing to operate and generate profit.
During the divorce, the value of any businesses owned will be carefully assessed, and a decision made regarding a fair course of action. Although exceptions are made, the starting point for divorce in England and Wales is an equal division of assets – although a clear contribution to the success of the business by a non-owner will count in their favour.
Dividing the value of a business could be done in several ways – for example:
- Allotting shares in the firm to the other spouse
- Via an agreed sale
- Using revenue from the business to support the other spouse
- One partner buying out the other
The particular course of action chosen will depend on the individual circumstances of each couple. The last option above is the usual approach for businesses that are jointly owned by a divorcing couple. This approach may also be appropriate on some occasions when the partners in a business are not married to each other but one is divorcing and needs to liquidate their interest in the company.
How is a business valued in divorce?
Both parties are legally required to make full and frank financial disclosure, and this includes providing up-to-date information about any business interests. This disclosure isn’t static. If a business significantly increases or decreases in value after separation, both parties have a continuing obligation to reveal that development, even if it complicates earlier assumptions. Courts place considerable weight on transparency, and failure to disclose updated valuations can lead to prior settlements being reopened.
One of the core issues is the date at which the business is to be valued. There isn’t a hard-and-fast rule dictating whether the date of separation or the date of divorce should be used as the valuation point. While the date of separation often serves as a logical starting point—since it marks the end of the matrimonial partnership—it may not be fair or practical if a long time has passed. In those cases, the court may look at updated business valuations to reflect the present-day reality, particularly if the value has substantially shifted.
Increases and decreases in valuation
When a business increases in value after separation, the court’s approach largely depends on why the value has grown. If the increase results from broader market forces or trends—such as a sector-wide boom or general economic upswing—that growth is often deemed “passive” and remains part of the matrimonial assets to be shared. The logic here is that neither spouse specifically caused the growth, and both should benefit from the increase, even if they have stopped living together.
However, if the value of the business has increased because of the direct efforts or decisions of one spouse after separation—perhaps through restructuring, innovation, or securing new investments—that gain may be seen as “active” and attributable to that person’s individual post-separation contribution. In such cases, the court may decide to exclude this added value from the matrimonial pot. Essentially, the spouse who drove the improvement may be entitled to retain the fruits of that labour, as the increase is seen as a result of post-separation effort rather than joint matrimonial enterprise.
At the other end of the spectrum, a business may experience a downturn between separation and divorce. When this happens, the court will seek to identify the underlying cause. If the decline is because of external factors beyond either party’s control—such as inflation, recession, or industry disruption—then the fall in value is generally accepted as part of the shared financial consequences of divorce. In this scenario, both spouses bear the impact equally. But if the fall in value stems from one spouse’s mismanagement or reckless decisions made after separation, the court may adjust the settlement to reflect the avoidable loss. There have been cases where a judge has effectively re-inflated a diminished asset to its previous value (a process sometimes referred to as “adding back”) in order to prevent one party from being unfairly disadvantaged by the other’s conduct.
If a party delays proceedings or manipulates the timing to capture gains or losses strategically, the court has wide discretion to correct for that. Judges have commented in various cases that they will not allow gamesmanship or opportunism to skew equitable outcomes.
Experts used to value businesses
In these cases, the method and timing of business valuation are vital. In most situations involving business assets, the court will rely on the expertise of a forensic accountant or valuation expert, often jointly instructed by both parties. The expert will produce a valuation report using appropriate methodologies, which could include assessing income, net assets, or comparisons to similar businesses. If the parties cannot agree on the date of valuation or which changes in value should count, the expert may be asked to provide valuations for multiple time points—typically one at separation and one more current—so that the court can determine the most appropriate benchmark for dividing assets.
Business valuations are rarely straightforward. Experts must consider the company’s liquidity, growth prospects, and risk exposure. When one spouse is expected to retain a business that is difficult to sell or speculative in nature, a discount is sometimes applied to reflect that reality. The court is careful not to overestimate what that business is “worth” if, in practice, it can’t be turned into cash or easily sold. For example, if someone holds a minority stake in a private company, their ability to realise the paper value of that stake may be extremely limited, and this has to be accounted for in the settlement.
Can we sell the business?
While selling the business outright and dividing the proceeds can be a clean solution, it is often not realistic. Businesses may be illiquid or dependent on the owner’s personal involvement, making them unsellable in the short term. Instead, the court may award the business to one spouse—typically the one most involved in its operation—and compensate the other through a larger share of liquid assets, such as savings, property equity, or pension rights. This offsetting approach aims to balance fairness while keeping the business intact and viable.
In some rare instances, divorced spouses may retain joint ownership of a business post-divorce. This requires a particularly high level of trust and cooperation and is typically only viable in amicable divorces or where the business functions best as a partnership. However, more commonly, arrangements are structured so that one spouse exits the business entirely.
Pre and post-nuptial agreements
Some couples take steps before or during their marriage to regulate how business interests will be treated in the event of divorce. Prenuptial and postnuptial agreements can be used to ring-fence business assets or specify how future gains or losses will be handled. While such agreements are not legally binding in the UK, courts increasingly give them considerable weight if they are entered into voluntarily and meet the fairness criteria, including making adequate provision for the other party’s needs.
Contributions to the business
The court will look at the roles each spouse played in the business over the course of the marriage. A spouse who worked unpaid in the business, or managed household responsibilities to free the other to focus on business development, may be deemed to have made significant contributions. The court’s ultimate aim is to reflect both direct and indirect efforts fairly in the asset division.
Ultimately, fairness is the overriding principle. This doesn’t necessarily mean an equal split, especially where one spouse has contributed more, taken more risk, or will be left with a less stable asset base. The court considers needs, contributions, and the specific context of the marriage. If one party walks away with an appreciating business while the other receives cash or a house, the court may factor in the risk being carried and adjust the division accordingly.
What happens after the divorce?
At the conclusion of the divorce process, when the ‘consent’ order specifying the division of assets is agreed, signed and ratified by a judge, that is usually that. The division has been agreed, and it is not usually possible for either spouse to reopen a claim against the other. In order to do so, it is generally necessary to demonstrate ‘material non-disclosure’ by the other spouse – i.e. a meaningful failure to fully disclose all financial assets and information during the divorce negotiations. If, for example, a business owner had reason to believe that their company was likely to increase in value at a defined point in time – because of a buyout for example – but they did not reveal this during the divorce negotiations, that could constitute material non-disclosure and become the basis for a fresh claim in the divorce courts by their former spouse.
If you or your spouse has business interests and you would like advice on how these interests might be handled in the event of divorce, contact us today for a free consultation.