Anyone divorcing a self-employed partner will already know that the financial side rarely follows a straight line. But when that spouse is a self-employed director, the difficulty can feel much worse. Directors have the ability to decide how much they earn, what profits they withdraw from the company, and how money is shuffled between business and personal accounts.
One of the most frequent issues is the director who has spent years paying themselves a slender salary while letting substantial profits accumulate inside the business. In the lead-up to separation, the pattern may become even more striking: dividends stop, management accounts look surprisingly fragile, although nothing in the director’s lifestyle appears to have changed. This is the situation that leaves many spouses feeling that the matrimonial pot is being artificially starved of funds in order to reduce their financial share. With situations like this in mind, the courts are far more concerned with financial reality than with the image a spouse tries to project. In other words, a company is not a hiding place.
When a low income isn’t really a low income
Most directors operate on low PAYE salaries, and in most cases, there is nothing automatically suspicious about that. However, the problem often emerging during divorce is when that low salary is used to argue that they:
- Have almost no income
- Cannot pay maintenance
- The matrimonial assets are only modest
The good news is that court does not accept financial self-presentation at face value and looks closely at how the couple lived during the marriage. If the lifestyle bears no resemblance to the director’s declared income, the judge will want to know where the money actually came from.
If the business has healthy retained profits or a long history of paying dividends, the court can infer that the director could, if they wished, take far more than the token income they declare. In such cases, the court may credit income to the director, essentially calculating what the director should be earning, rather than what they choose to take. This figure then forms the basis for maintenance, capital distribution and overall needs assessments.
The effect is that a director cannot avoid responsibility by simply refusing to take money out of their own business.
When the business has other directors or shareholders
It becomes more complicated when the business isn’t entirely theirs; perhaps it is a partnership, a family enterprise or a multi-director company where profits and decision-making are shared.
In these circumstances, the court’s approach is more nuanced. It will examine what proportion of the company belongs to the director, what level of control they have, and how the business has historically been run. If the director has a 50% share and has, for many years, drawn dividends in line with that share, the court may treat that pattern as evidence of the resources available to them, even if dividends have mysteriously dried up since the marriage broke down.
Where other shareholders genuinely limit the director’s ability to take funds, that will be taken into account. But the presence of other owners does not prevent the court from valuing the director’s shareholding or considering it part of the matrimonial pot. The fact that it may not be instantly liquid does not make it irrelevant; instead, the court may compensate the non-director spouse by dividing other assets differently or ordering delayed lump-sum payments.
When business spending suddenly explodes
Perhaps a more troubling scenario is when the director begins using business money to purchase assets, equipment or marketing services in a way that seems excessive or out of character. New vehicles may appear on the business books, large transfers are made to associated companies, or staff bonuses arrive just as the application for divorce is received. On the surface, everything is explained as ordinary business expenditure, but beneath the surface the spending looks like an attempt to drain the business of cash.
This is where forensic accounting is helpful. Financial experts can analyse whether the company’s spending during the divorce period reflects its ordinary patterns or whether the director has inflated expenses to reduce apparent profitability. Their report may reveal substantial inconsistencies, such as sudden write-offs, consultancy fees paid to relatives, or capital expenditure that has no plausible commercial rationale.
If the court finds that the director has dissipated money deliberately to reduce the matrimonial pot, the judge may add back the value of those funds, treating them as though they still exist. While add-back is used cautiously, it remains a powerful remedy against bad-faith behaviour.
Can the court force a director to use business funds to pay their spouse?
A common source of confusion is whether a court can force the company itself to hand over money. The answer is that the court does not (and cannot) make orders directly against the company unless the company is a formal party to the proceedings. But it can make orders against the director personally, and this has indirect but decisive effects.
For example, if the director is ordered to pay a lump sum but claims they have no personal funds, the practical implication is that they must find a way to extract money from the business or sell part of their shareholding. The court does not instruct them how to do it; it simply requires the payment. Non-payment risks enforcement action, and directors rarely test the court’s patience for long.
Where the business is valuable but funds cannot be easily realised, the court might spread payments over time or award the non-director spouse a greater share of other assets. In some cases, the court may order a transfer of a percentage of the director’s shares, although this option is rarely used in practice it is important to remember it is available when fairness requires it.
Where the business is the only major asset
In many families, especially where the director’s business has been built from the ground up, the company is the central asset of the marriage. The house, savings and pensions may be modest; the business, by contrast, may have significant value but be difficult to remove money from without harming its stability.
Faced with this challenge, the courts try to balance three competing considerations:
- The need for a fair division
- The need to avoid damaging the livelihood of the director
- The need to ensure that the non-director spouse does not leave the marriage empty-handed after years of contribution
Often the solution involves a combination of valuation, staged payments and creative structuring of capital. A professional valuation may determine the worth of the director’s shares, even if they cannot be sold on the open market. From there, the court may adjust the division of assets or order lump sums payable over time, sometimes backed by maintenance until the full capital settlement is complete.
What a spouse can do when they suspect money is being hidden
The most effective early step is to gather information, such as tax returns, bank statements, historic dividend schedules, lifestyle evidence, business accounts and anything showing the standard of living enjoyed during the marriage. Where businesses are involved in a divorce, solicitors will often seek deeper disclosure than the basic Form E, requesting management accounts, business bank records and documentation relating to major expenditure.
Where disclosure appears incomplete or manipulated, the court can order further documents to be provided. And if the stakes justify it, a forensic accountant may be instructed to analyse the company’s cash flow and spending patterns. This is particularly important when there has been a dramatic drop in declared income, a sudden spike in expenses or movements of funds that do not fit the business’s prior behaviour.
In the most extreme cases, typically when assets are being moved or hidden, an injunction may be needed to prevent dissipation. While these are unusual measures, their availability ensures that a director cannot simply empty the company before a settlement is reached.