The limited company in divorce - does post separation wealth have to be shared?

Directors often assert that post-separation business income and wealth generation is a result of their own efforts and should therefore be protected from being shared with other matrimonial assets.

The recent judgement in DE v FE EWFC 71 [2022] demonstrates that this is not always possible and why a spouse may be entitled to a share in the company's success, even after the parties have separated.

In DE v FE it was held that the investment during the marriage was integral to the success of the business immediately after separation. Even where wealth has accrued after the marriage has ended, the court will examine the circumstances surrounding the company.

Two of the factors considered in this case are explored below:

The Marital Partnership

It is difficult to understate the value of the marital partnership that exists between spouses. The court very rarely accept arguments that commercial success was solely driven by one spouse. For example, in DE v FE, the Judge decided that the post-separation success was a 'reflection of the work done before physical separation and even after separation'.

The courts can refuse to allow a director to enjoy the fruits of a tree that was jointly planted.

Note that the sharing impact of the marital joint endeavour may decrease with the passage of time;  the more time that passes between the parties separating and the wealth being created, the more likely it is that the income generating spouse will be able to retain that wealth.

Contribution

White v White UKHL 54 [2000] outlines the courts' approach to the differing nature of contributions to the matrimonial endeavour. This case emphasised 'equality of contribution'. The domestic and parental efforts were held to have identical value to the financial efforts of the income generating spouse.

Baroness Hale in SRJ v DWJ (Financial Provision) 2 FLR 176 2 FLR 176  [1999] explains that the rationale for this is that a director is only able to 'feather the nest because they do not spend time sitting on it'. In other words, the wealth generating spouse is only able to do so because the other spouse is dealing with the other, perhaps more pastoral, obligations regarding home and family.

Those respective contributions may be easily identified, as shown in DE v FE, where the capital invested in the new business venture was taken from a 'joint matrimonial account'. However, non-financial contributions such as being a homemaker or child-carer, will hold equal weight. The value attributed to the 'division of labour should not prejudice either spouse'.

Evaluating your position

The distribution of post-separation business wealth depends on the facts of each case. Courts are burdened with the difficult task of determining the extent to which the wealth is matrimonial considering both factors discussed above.

"Dealing with companies in divorce requires experience and expertise." explains Neil Denny, divorce lawyer with Chattertons in Lincoln.  "Knowing how the courts deal with limited companies in divorce and being able to apply previously decided cases and statue to each client's situation is crucial."

"Separating causes a great deal of anxiety to business director-shareholders and their spouses.  We will advise you on practical solutions and strategies to resolve the financial matters, often without the need for contested court proceedings."

"That enables the business owning spouse to focus on their business and, at the same time, reassures everyone that there is a proper assessment and distribution of the shareable assets."

GET IN TOUCH

If you are thinking about or going through a separation and are worried about how the court will deal with the family business in divorce then call Kyle Morgan on (0)1522 541181, or via email Kyle.Morgan@Chattertons.com.

Chattertons offers specialist family law advice throughout the network of office bases:

Boston  - 01205 351114

Horncastle - 01507 522456

Grantham - 01476 591550

Lincoln - 01522 541181

Newark - 01636 673731

Sleaford - 01529 411500

Spalding - 01775 725664

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