Drawing up a detailed list of your outgoings and incomings on a monthly basis is one of the first steps required by a solicitor in order to establish your financial position.

Your budgetary list will help solicitors determine how much you and your partner are worth, and it will be used in any negotiations relating to your divorce or separation.

What if There Isn’t Enough Money to Support Two Households?

By drawing up a list, you may identify a shortfall that has or could result in debt problems.

To resolve debt issues you should always begin with looking at ways of increasing your income, for example:

• Could you increase your hours at work?
• Are you claiming all the benefits you are entitled to?
• If you are living on your own, have you applied for a reduction in your council tax?
• Could you take a mortgage ‘holiday’?
• Could you change your mortgage to interest only?
• Have you checked your tax codes?

A court order for temporary periodical payments called ‘Maintenance Pending Suit’ can be applied for if your divorce is going to take time, or if your ex is unable to financially support themselves during the divorce process.

Claiming Benefits

Many people do not claim benefits to which they are entitled because they wrongly assume they cannot claim anything. It is always worth checking your entitlements to make sure you are receiving everything to which you are entitled and your local Citizens Advice Bureau will be able to help.

There is no set framework for dealing with pensions in divorce, but a pension is considered part of your marital assets, whether it belongs to you or your spouse/civil partner, and it must be considered in divorce proceedings

The court will look at provision for the family and assess what resources are available to all parties to ensure their future financially. If the court rules that the pension is to be shared, there are two ways this can be achieved:

• The capital is divided at the time of the divorce.
• The pension is divided to make equal income for retirement.

Courts vary in the approach they take, but the following orders can be used:

• Pension Sharing Order – the court divides the pension between spouses setting up a new pension scheme with the credit either within the occupation scheme or into a personal plan.
• Lump Sum Order – one spouse is ordered to pay a capital sum to the other which could be used to set up a plan for their retirement
• Pension Attachment Order – used less frequently, on reaching pensionable age an income is paid direct to the spouse. This is also the same of lump sums on retirement.
• Transfer of property – share portfolios, endowment, property or investments can be transferred to your spouse and capital can be released at a later date to produce an income.

Take Financial Advice

Pensions are notoriously complicated, especially when you’re getting divorced. Solicitors are not qualified to give financial advice and therefore it is essential to seek advice from an Independent Financial Advisor.

As part of the process of reaching a divorce settlement, you will be required to make a full and frank disclosure of your financial circumstances.

Since the business can be considered an asset like any other, it is necessary to obtain a fair and meaningful estimate of its value.

It is in your interests to arrive at a fair and meaningful value for the business as soon as you can since costs can rise if it becomes lengthy and complex. You might consider the collaborative approach with face-to-face meeting, thereby reducing the amount of correspondence.

The Valuation Process

Valuing a business is more complicated and subjective than valuing a house. There are many factors to be considered such as projected income, goodwill and the nature of business you are involved in.

Costs of sale, Capital Gains Tax and depreciation costs will be taken into account. It might be that without your skill/expertise your business would be worth very little. It is, therefore, important that a valuation is undertaken at an early stage to ensure that costs do not escalate unnecessarily.

The court usually prefers to appoint a single joint expert, a consultative accountant who will act on behalf of both parties and assess the business with a view to making a valuation.

Sometimes, the valuation may seem too high or low based on the evidence you have submitted. Whilst it is important to remember that the valuation is not the only factor the court takes into consideration, if you think it is inaccurate you may apply to the court for permission to hire separate accountants to do a valuation. This situation is very rare and the courts will only agree if the costs are proportionate to the case.

In all cases, you should take legal, business and accountancy advice. There may be tax and capital gains tax implications in any decisions that you make.

How Will the Valuation Affect the Settlement?

When coming to a settlement, the court will consider the valuation together with all the other family assets. If there are children, the court will evaluate the best possible outcome for their long-term financial stability. Depending on the valuation of your business together with your individual circumstances, this may or may not mean selling the business.

The way business are treated in divorce has changed due to the landmark case of White vs White in 2000.

Mrs White was awarded a 40% share of the couple’s farming business, making it necessary to sell the business in order to fund her settlement.

Settlements are now focussed on respective contributions to the business and homemaking during the marriage with both being considered as of equal importance. The courts are required to test their proposed division of assets against a yardstick of equity, which for most cases is a 50/50 split.

In awarding a settlement, the courts will therefore consider the family business together with any other family assets and depending on the individual circumstances this could mean the business having to be sold.

What Can I Do to Protect My Business?

There are measures you can take in order to reduce the impact on your business. It does, of course, depend on whether the business was started before or during your marriage, who started the business, whether your spouse was active in the business and if he/she wants to remain so. These issues are best discussed with your solicitor in order that they can best build your case. Following this, these are some of the avenues you may be able to pursue.

Does the business have separable assets?

Are there any other assets that can be transferred to your spouse without damaging the business? This can take the form of liquid assets such as bank balances, land or property in the case of farming or property development companies.

Do you have any non-business assets you can transfer?

It may be possible for the partner retaining the business to transfer non-business assets such as a larger share of the joint home, private savings or investments to the spouse which can be offset against the spouses interest in the business.

Paying instalments over a period of time

The partner retaining the business could opt to pay a lump sum to the spouse over a set period of time. This may suit you if you can increase your income from the business over a limited period or generate sufficient borrowings.

Paying your spouse a proportion of the net proceeds in the future

You may be able to agree to pay your spouse a percentage of the net sale proceeds in the future. This does of course tie you together beyond your divorce which is not always desirable.

Can you continue to run the business together in some form?

If the business is generating a healthy income stream and you have children that need supporting, you may consider ways of both continuing the company. This approach is only suitable for some people and would benefit from the collaborative law approach.

Maintenance

Instead of a clean break, the other partner could opt to have ongoing maintenance payments, and if the business is sold in the future, opt to capitalise the maintenance at that point. Again, this has the disadvantage of leaving one partner reliant on the other which is not desirable in all cases.

Divorce will certainly have an impact on your business. Historically, it has always been assumed the family business would be protected during a divorce, however, recent case law has shown that this may not always be the case.

Today, the family business is considered to be an asset alongside the matrimonial home, investments and pensions. Every divorce is different and the court now considers all the family circumstances when arriving at a settlement.

As an asset, your business is going to be under scrutiny and you will be required to make a full and frank financial disclosure. In addition to this, it’s always helpful to sit down with your solicitor and flesh out this information. All businesses are unique and a full knowledge of the nature of your business and how it operates will assist your solicitor with your case.

Some points you may wish to consider:

• What are your plans for the business – do you want to run it as a sole trader?
• Were you hoping to leave it to your children?
• Who set up the business?
• A realistic idea of how much contribution your spouse has made historically and at present.
• Who else is involved in the business? For example, are there business partners outside the family whose livelihoods would be affected?
• What is the position with regard to the sale of shares?
• How is the business weighted financially?
• Is it capital heavy and income light like a farming business or capital light and asset heavy like a consultancy?
• What are the strengths and weaknesses of your business in today’s market?
• How do you see the business performing in the future?
• What are your plans for the business? Include what they were during your marriage and now you are getting divorced.

Litigate or Collaborate?

Divorce, especially where business and children are involved is a highly specialised area of law and to ensure the best possible outcome, it is vital you take appropriate legal advice.

If you are both genuinely seeking a fair solution and feel you would be able to meet round a table with your respective solicitors, collaborative law may be the answer. Often more cost effective than traditional legal involvement, the process involves a series of four-way meetings with your solicitors where the issues surrounding your divorce are discussed with a view to reaching resolution. Once resolution is reached, it can be made into a formal agreement or court order in the same way. Only those trained in collaborative law can practice, so both of you will need to select a collaborative solicitor.

Many marriages founder, partly due to the pressures resulting from financial problems and when couples come to separate they may find themselves already in a position of significant indebtedness with no foreseeable way of ever being able to pay off their debts, many of which are carrying interest at a high rate.

Of course, it is best to discharge the indebtedness and have a clean slate if at all possible, but in those cases which appear to be hopeless, there are always ways in which the law affords its protection to people who otherwise would have no chance of making a fresh start.

The law concerning Bankruptcy Administration Orders and Individual Voluntary Arrangements is very complex and the following is designed to be an outline only of the broad law.

Bankruptcy

By declaring oneself bankrupt, the effect is to pass the ownership of one’s assets to initially the Official Receiver and subsequently, if appropriate, to a person appointed as an Officer of the Court called a Trustee in Bankruptcy. It is the Trustee’s job to convert all of the assets (excepting exempt assets such as the tools of the debtor’s trade) into cash and distribute it to the creditors fairly. If the bankrupt jointly owns property, then the Trustee will usually not be able to take any action for a year if the property is still occupied by the bankrupt’s husband or wife and children, but after that time the Trustee will in all probability, wish to sell the bankrupt’s share of the house and will have every right to do so. It is possible that the bankrupt’s wife or husband in those circumstances will be given the option of buying the bankrupt’s interest at its market value, taking into account any outstanding mortgage.

The Trustee may ask the Court to make an Order requiring payment of a proportion of the bankrupt’s income for a period of up to three years. A Bankruptcy Order will usually last for a maximum of one year, after which time none of the relevant debts will be enforceable.

Even if the Family Court makes an Order in relation to your financial circumstances whether it is as a result of an agreement between you, or the Judge making an Order after a trial, if either yourself or your spouse is subsequently made bankrupt the Trustee can apply to the Court for that financial settlement to be overturned.

Individual Voluntary Arrangements

This enables the debtor to obtain protection from his creditors for a short period while he proposes an arrangement to satisfy his debts and also arrange his affairs which is known as Voluntary Arrangement. The Voluntary Arrangement allows the debtor to have more control of his affairs and can therefore contain quite a degree of flexibility. This form of arrangement is particularly useful if a person wishes to avoid the stigma of bankruptcy and wishes to keep more control of his or her affairs, and in particular wishes to retain a matrimonial home in which there is significant equity.

If you have a joint bank account with your spouse, you should ensure that the account is made a joint signatory account requiring two signatures for any money to be withdrawn.

Otherwise any money in the account can be withdrawn, or an overdraft run up, without your knowledge or permission and you will be jointly liable, even if you have not spent the money yourself.

In the same way, you should cancel any credit cards that are in your sole name with your spouse being a second card holder otherwise you will be similarly liable for any expenditure incurred by the holder of the credit card.

Please note that with some banks, if you mention the words “separation” or “divorce” they may automatically freeze any accounts that you hold with that bank.