When one or both parties to a marriage own a limited company, particularly a small or family-run enterprise, it often becomes a focal point during divorce financial proceedings. This is because, under English and Welsh law, all assets—regardless of in whose name they are held—are considered when determining the appropriate division of matrimonial property.
Here, we explore how limited companies are typically treated in divorce, what options are available to protect such businesses, and how courts address disputes involving company ownership.
Is a limited company considered a matrimonial asset?
A limited company, or more accurately, the shares in the limited company, are usually considered a marital asset if:
- The business was established during the marriage
- It grew significantly during the marriage
- The business supported the family lifestyle (e.g. income, assets, benefits)
The shares held by a spouse, whether majority or minority, may be valued and included in the matrimonial asset pool for division.
In cases where one spouse owned the company before the marriage, the court will distinguish between “non-matrimonial” and “matrimonial” property. However, if the company has become interwoven with family finances or has significantly appreciated in value thanks to joint efforts or during the marriage, even pre-marital businesses may be considered at least partly marital assets.
How are limited companies typically treated in divorce?
When a limited company forms part of the asset pool, the court’s primary objective is to achieve fairness, unless there are compelling reasons otherwise (e.g. short marriage, non-marital contributions).
However, courts are generally reluctant to interfere with ongoing businesses. This reluctance is grounded in:
- The practical difficulty of dividing a company
- The potential to damage the income-generating capacity of the business
- The broader economic implications, such as staff redundancies or creditor risk
Instead of ordering a direct transfer of shares or a split of the business, judges may opt for offsetting—allowing the business owner to retain their shares while compensating the other spouse with a greater share of other assets (such as the matrimonial home, pensions, or savings).
Can I protect my business in a divorce?
Business owners can try these things:
a) Pre- and post-nuptial agreements
These agreements can ring-fence business assets if drafted and executed properly. Although not automatically legally binding, the courts give significant weight to such agreements, especially post-2010 and the case of Radmacher v Granatino, provided:
- Both parties had independent legal advice
- Full financial disclosure occurred
- The agreement is fair and not prejudicial to children’s needs
b) Shareholders’ agreements
Many family-owned or private companies implement shareholder agreements that restrict the transfer of shares to spouses or third parties. While not foolproof in a divorce context, the court may take these restrictions into account when assessing value or feasibility of share transfers.
c) Separate personal and business finances
Blurring the lines between personal and company finances can work against the business owner. Maintaining clear separation, distinct accounts, legal documentation, proper salary/dividend structure, helps argue that the business should not be considered a direct family asset.
What if the other spouse is awarded a share in the business?
In rare instances, especially if both parties worked in or contributed to the business, the court may consider a transfer or allocation of shares to the non-owner spouse.
However, this raises challenges:
- Valuation disputes: Business valuations are complex. Courts often rely on forensic accountants or expert reports to determine a fair market value.
- Loss of control: A transfer may result in a non-working ex-spouse having a say in business decisions, which can be disruptive.
- Liquidity concerns: The company may not have cash assets to buy out a spouse’s share.
For these reasons, courts often favour alternative mechanisms, like lump sum payments or deferred compensation(sometimes paid over time to avoid disrupting business operations).
Can the business owner argue that division would damage the business?
Yes—and courts often take such arguments seriously. If the division or forced sale of shares would:
- Reduce the viability of the business
- Harm the livelihoods of employees
- Jeopardise income streams for both parties
…then the judge may steer away from drastic action.
To support this, the business owner should present:
- Expert evidence on the impact of forced sale or ownership changes
- Evidence of how the company’s continuity supports spousal and child maintenance
- Proposals for alternative settlements that allow the business to remain intact
The court is particularly wary of taking steps that undermine an income-producing asset that benefits the entire family.
Are judges reluctant to share the business between spouses?
Courts tend to avoid placing divorced spouses into a position where they must continue to co-own or jointly manage a business. This can lead to conflict, dysfunction, or long-term entanglements that defeat the objective of a “clean break”.
Instead, judges prefer:
- One spouse retaining the business interest
- The other receiving compensatory assets or maintenance
- Deferred sale agreements (e.g. the business owner buys out the other spouse’s interest over time)
The exception may arise where spouses have historically and amicably co-managed a business and wish to continue, but such cases are rare.
What if a spouse closes the business and opens a new one?
This tactic is sometimes used to evade financial disclosure or asset division, especially among self-employed individuals or sole directors. However, the courts are alert to such conduct.
Both parties have a duty of full and frank disclosure. If a spouse:
- Shuts down a business
- Transfers assets to a new entity
- Sells to relatives/friends at undervalue
- Deliberately undervalues shares
…then the court can:
- Set aside such transactions
- Impute value to the business based on historical performance
- Make adverse cost or settlement orders against the offending party
This kind of behaviour can significantly harm credibility and result in punitive awards.
Navigating divorce with a limited company
Divorces involving limited companies require a careful balancing act—protecting the business, ensuring fairness, and preserving income sources for both parties (and any children).
In cases of divorce, business owners require expert guidance from family law solicitors and forensic accountants to navigate the complexities of matrimonial law and their business affairs.