Dividing business interests on separation if you were cohabiting
If you and your ex-partner were neither married nor in a civil partnership, but have been running a family business together or have shared business interests, you may be able to claim a share in their value. Find out the options available.
Assessing whether you can make a claim
If you’ve lived together as a couple without marrying or entering a civil partnership, you don’t have an automatic right to make a claim on your ex-partner for a share of any business interests once you separate. But if:
- you’ve run a business together
- you were promised a share in it, or
- you’ve contributed to it financially,
you may be able to make a claim in court for compensation if your ex-partner won’t honour commitments they may have made.
In England or Wales , you would need to show you had a ‘beneficial interest’ in your ex-partner’s business. In Scotland , you would need to show you’ve suffered what’s called ‘economic disadvantage’ or that your ex-partner has obtained an ‘economic advantage’ – and you would have one year to do this from the date of your separation.
Making a claim could be expensive, so you should take legal advice before you begin any court action. You may also need to arrange a business valuation. This can be complicated and, as a result, can cost thousands of pounds. Before instructing experts, it’s a good idea to get some legal advice on this too.
Read our guide on Your options for legal or financial advice on separation.
Valuing a business
If both of you own the business between you, either of you can arrange a valuation. Generally, if one of you owns it (outright or with others), they must ask for the valuation. The process may not be straightforward, especially if the business is privately owned.
Valuing a business may depend on:
- The structure of the business: whether it’s a limited company, sole trader or partnership
- Its earnings (namely the profit it is expected to make in the future)
- Its assets, such as property or stock that it owns
Understanding the different types of business structure
There are different ways to structure a business. If you’ve been involved in the business, you are likely to know the difference between them. But if it’s your ex- partner’s business, you may not know how the business has been set up. Here is a quick overview:
Sole trader: the owner controls the business assets, but they are also personally liable for any business debts. The income and profitability are the most important figures, although business assets, such as premises or vehicles, may also be taken into account.
Partnership: this may be an informal partnership, with no written agreement, or a formal one. If other people – apart from you or your ex-partner – are involved, then valuing it will be more complicated and you are more likely to need expert help.
Limited company: As with partnerships, valuing a limited company will be more complicated if other people have a stake in the business. If you or your ex-partner own all of the shares, it may be relatively straightforward to value.
Disputing a business valuation
Couples who are separating may not always agree about how much a business is worth. This is especially true if one partner has had much less involvement in it. Sometimes the business owner may appear to undervalue their business (possibly dramatically).
Bear in mind that:
- Using experts to help you get a true value of the business can be expensive. In some cases, people have spent many thousands of pounds on specialist accountants.
- The fortunes of the business may have taken a turn for the worse recently. Just because the business was doing well last year or the year before doesn’t mean it will be doing well now.
- Business owners can be optimistic about their own business and you may have been led to believe it was much more profitable than it really is.
Resolving a dispute through mediation
To avoid protracted and expensive court action, you and your ex-partner could try mediation to resolve differences over how to divide shared business interests. A mediator is an independent third party who can help you and your partner reach an agreement. A mediator can’t give you legal advice, but you can consult your solicitor before or after mediation sessions. Your solicitor would advise you how to turn anything you’ve decided into a legally-binding agreement.
You can find a mediator:
- In England or Wales : on the Family Mediation Council website or on the National Family Mediation website
- In Northern Ireland : on the Family Mediation NI website
- In Scotland : on the Relationships Scotland website