Business Assets in an English Divorce – How Can Parties Protect their Interests?

Parties to a divorce in England are under an obligation to disclose all of their assets, including any assets in which they have an interest. Full and frank financial disclosure has to be provided and there can be severe consequences for those who do not comply with this obligation – being held in contempt of court and even sentenced to time in prison for the most serious breaches. It can often be the onerous task of the other party’s solicitor to investigate and ensure that the disclosure that has been given is full and accurate.

Business assets - be it a sole trader business, partnership, shares in a limited company or a Limited Liability Partnership - need to be disclosed and considered as part of the overall resolution of financial matters on divorce. How the business interest is dealt with will depend on the particular circumstances of each case, but the court has the power to order the transfer of shares in a company from one party to the other or may make an order in respect of any future sale of the shares or business.

How a business asset is treated on divorce can also involve arguments about whether it should be treated as a matrimonial or non-matrimonial asset. Parties in whose name the business asset is held may therefore wish to protect it either pre-marriage (by virtue of a pre-nuptial agreement) or whilst married (by virtue of a post-nuptial agreement).  Whilst not binding as contracts, nuptial agreements can carry significant weight if certain criteria are met.

Valuing a Business for Divorce Purposes

An interest in a business may be the most valuable asset belonging to the parties upon a divorce and can therefore be a very sensitive issue. This may particularly be the case if one party has dedicated their career to building up the business or feels that they have made a unique or special contribution for it to grow. The exercise of valuing businesses is very specialised and technical and the interpretation of the business accounts and the business’ presentation, as well as the approach taken, can vary significantly from expert to expert.

One of the more difficult issues with business assets is that they can often be difficult to value precisely as values can fluctuate dramatically depending on the relevant market and other factors. This was highlighted in the recent case of DR v UG [2023] EWFC 68 where the value of the husband’s shares fluctuated from £57 million in 2020 to over £250 million on a sale a few years later.

Additionally, some experts may consider that certain business interests are illiquid (even if they have generated an income for many years). In this case it may be more appropriate that an order is made in respect of a future sale (if any).

Using Nuptial Agreements to Protect Business Interests on Divorce

Nuptial agreements are very important to those bringing pre-acquired assets to a marriage and they can be an excellent wealth management tool to protect business assets on a divorce – whether by ringfencing those assets or specifying what will be shared (perhaps a smaller proportion than may otherwise be ordered by the court), as appropriate. Such an agreement is likely to define “matrimonial property”, for example assets held in the parties’ joint names or acquired throughout the marriage (such as the family home or joint bank accounts) and “non-matrimonial property”, which could include the parties’ separately owned properties, inheritance and any business assets.

In the seminal case of Radmacher v Granatino [2010] UKSC 42 the court held the following:

“The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.”

Whilst not binding in the sense that the agreement would oust the jurisdiction of the court, the court will consider the following criteria when determining the weight to be given to a pre or post nuptial agreement: (1) If the parties have both had legal advice on the implications of the agreement (and effectively understand what claims they may be giving up); (2) the agreement is freely entered into (i.e. there is no undue pressure or duress when entering into the agreement); (3) there has been financial disclosure of each party’s assets and circumstances; and (4) there is nothing that renders the agreement unfair in the circumstances. Provided these conditions are met then it is likely that the agreement will be upheld by the court.

A recent example of the consideration of a nuptial agreement in financial remedy proceedings is the case of AH v BH [2024] EWFC 125. The husband was an entrepreneur and set up a business in 2007 when he was 24 years old. The parties later met in 2015 and entered into a nuptial agreement in April 2018 which stated that (amongst other points) they would each retain their separate property and there would be no matrimonial acquest. At the time of entering into the nuptial agreement, the husband disclosed the value of his business assets as €45.3 million and at the time of the hearing it was worth £38 million. The husband had over £50 million of assets in his sole name and the wife had £291,000.

The nuptial agreement was said to have a ‘constant influence on the case’, but it was departed from in order to meet the wife’s needs (she was financially independent before the marriage with a mortgage free property, but now said she was financially reliant on the husband). At the final hearing she was awarded just over £4 million (8% of the assets).

Crucially, the Judge said: “Had the parties not signed the PMA, [the wife] might have been entitled to receive on a sharing basis as much as £7.5m, and possibly more. Even on a needs basis, I consider that, absent the PMA, her award would likely have been greater than I have provided for; retention of the FMH [former matrimonial home] and a longer Duxbury term (perhaps even a whole life term) would have been arguable.” The judge was satisfied that ‘appropriate weight’ had been given to the nuptial agreement ‘protecting the husband’s business interest’.  

This case is a good illustration of the benefit of a nuptial agreement for entrepreneurs and those with business assets. Even though the agreement was departed from, and the Judge said the award reflected ‘the wife’s ongoing long term responsibilities for the children’ her award was substantially less than may have been ordered by the court if there was no nuptial agreement at all.

How Businesses are Held – Piercing the Corporate Veil

Companies are separate legal entities and the principles of company law are applied in family matters. When deciding financial matters upon a divorce, the court only has the power to make orders in respect of assets owned legally or beneficially by the parties.

In the Supreme Court case of Prest v Petrodel [2013] UKSC 34 the court confirmed that companies are a separate legal entity but that there were ‘limited circumstances’ when it might be possible ‘to pierce the corporate veil’. In this case, even though seven properties were held by a number of companies belonging to the Petrodel Group (owned wholly and controlled by the husband) they were found to be held on resulting trust for the husband and thus were accordingly ‘property to which the husband is entitled, either in possession or reversion’.

This is an important case to bear in mind for those with business assets as, notwithstanding how the assets are held, it is a reminder that the corporate veil may be ‘pierced’.