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What Happens to the Family Business Following Divorce?

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If you are the owner or joint owner of a business and you have reached the difficult decision to end your marriage, you are likely to have reasonable concerns about the future of the family business. Here we look at key considerations regarding the law and its application.   

The law in Ireland regarding the distribution of assets

The Family Law Act 2019 amends previous family law legislation to update provisions regarding the distribution of assets and property during divorce proceedings.

One of the key aspects of this legislation is how it deals with assets, including family businesses, during a divorce. The amendments to the Family Law (Divorce) Act 1996, as modified by the Family Law Act 2019, refine the criteria under which assets are considered for distribution. The court considers various factors in dividing assets, such as the contributions made by each spouse to the family, including any non-financial contributions and the welfare of any children of the family.

The Act does not specify unique rules for family businesses but addresses the broader handling of property and assets. When a family business is involved, its evaluation and the determination of each spouse’s contribution to the business can significantly influence how it is treated in the divorce settlement. The overall aim is to achieve a fair distribution based on the circumstances of each case.

How is the process of distributing assets initiated?

It starts with a comprehensive evaluation of assets. Asset evaluation during a divorce involves determining the current market value of all marital assets, including businesses. This process typically requires hiring a professional valuator who assesses the business’s financial statements, market position, and potential future earnings. The evaluation considers liabilities, assets, and the personal contributions of each spouse to the business’s value. This valuation is crucial for ensuring a fair division of assets according to the legal and equitable standards set by the court.

Why is the date of the formation of the business important?

The date of the formation of a business is crucial because it determines whether the business is considered marital property or separate property. If the business was started before the marriage, it might be seen as separate property belonging only to the spouse who founded it. This may strengthen the case for that person to retain it. However, if it was formed during the marriage, it is typically regarded as marital property, subject to division between both spouses. This distinction can affect how assets are evaluated and divided in divorce proceedings.

How does the court determine contributions to the family business?

The court determines contributions to the family business by considering both direct and indirect inputs from each spouse. Direct contributions include financial investments and hands-on management or work in the business. Indirect contributions encompass efforts like supporting the other spouse’s business activities, maintaining the home, or caring for children, which enable the other spouse to focus on the business. The court assesses these factors to establish the extent of each spouse’s involvement and their impact on the value and success of the business, which influences how assets are divided during a divorce.

What is meant by an equal distribution of assets?

An equal distribution of assets doesn’t necessarily mean a 50/50 split, but rather a division based on fairness and equity, considering factors such as each spouse’s financial situation, contributions to the marriage, and future needs. This approach aims to ensure that both parties leave the marriage on relatively equal footing, taking into account the specifics of their circumstances.

What are the options for division?

There are various options regarding the future of the family business that can be negotiated during divorce proceedings. This includes the following:  

  • Buy-out – One spouse may buy out the other’s share in the asset. This is common with businesses where one spouse wishes to continue the business independently.
  • Sell and divide the proceeds – The asset can be sold, and the proceeds divided between the spouses. This option is often used when neither spouse wishes to or can afford to buy out the other, or when a clean break is desired.
  • Co-ownership – You and your spouse may choose to continue co-owning the asset. This requires a high level of cooperation and is less common, particularly in contested divorce cases.
  • Offsetting with other assets – One spouse may keep the business while the other receives assets of comparable value, such as the family home, investments, or cash.

When a family business comprises a significant portion of marital assets, the court must balance extracting value for equitable division while ensuring the business remains viable. There’s no fixed method for this; courts typically avoid disrupting business operations or altering ownership unnecessarily. The focus is on fostering agreement between parties to minimise conflict and ensure fair provision for both.

Need further guidance regarding your family business?

If you are going through a difficult divorce and have concerns about the future of your family business, the family law team at McCarthy + Co Solicitors LLP will be glad to provide you with assistance. Arrange a free and confidential consultation with us today and a member of our team will be in touch to schedule an appointment with a solicitor here.

Clíodhna O'Regan

Born and raised in Clonakilty, Clíodhna O’Regan is an Associate Solicitor specialising in conveyancing, with a particular interest in commercial conveyancing. She also specialises in family law. She has been an integral part of McCarthy + Co. for six years since she returned West in January 2017, after gaining experience as a conveyancing and probate solicitor in Cork city.

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