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The legal process

When a couple decide to divorce, one of them (the Petitioner) may apply (a Petition) to the Court for the marriage to be dissolved, subject to any objection or defence by the other spouse (the Respondent). Provided that the divorce is not contested then the appropriate documents are submitted to Court and after a few weeks of ‘paperwork and bureaucracy’, a District Judge will decide to grant what is called a Decree Nisi, the first of two decrees of divorce. Six weeks and one day later the Petitioner may apply for a Decree Absolute, which dissolves the marriage.

Key to resolution is agreeing financial matters and, although a Decree Absolute may be obtained prior to financial matters being resolved, there are reasons why property and financial matters should be dealt with before a Decree Absolute is granted. For example, with regard to pension rights or if one or both parties decide to remarry. A Decree Absolute only dissolves a marriage, it does not put an end to financial claims being made by an ex-spouse.

Financial and other matters may be inexpensively resolved by a process known as mediation but if this is not possible then a lengthy, stressful and costly legal process may ensue. This involves a ‘First Appointment’, when a Judge considers what other information is required to determine financial matters, followed by a Financial Dispute Resolution Appointment (FDR), when a Judge considers all offers and tries to encourage the parties to reach a satisfactory agreement. If this fails then there is a third and Final Hearing at which the Judge considers all of the evidence and makes a final order as to how all matters will be dealt with.

Key to the whole procedure is the process of financial disclosure, under which both spouses must give an honest and open account of all their assets and liabilities in a document known as Form E. This will need to be completed prior to the First Appointment in Court and in terms of business interests, will initially ask for the last two years’ accounts but, in order to minimise costs and ease the process, it is often helpful to volunteer additional information.

It is important to bear in mind that you will be dealing with a Family Court rather than a Commercial Court and it is common practice for the Judge to ask for a valuation as part of the financial disclosure. Once they have this information Judges are keen to understand the liquidity of a business and the ability to make payments for housing or other family needs. It is important to understand whether income will have to be shared going forward or whether shares in a business are best retained by both parties for a period in order to maximise the capital benefit from a future sale, taking into account, of course, the amount of post-divorce work that will be needed to reach a sale value.

The liquidity or otherwise of a business is very important and the Courts are increasingly looking at ‘clean- break’ settlements, subject to additional periodical payments for any children of the marriage.

Great care needs to be taken to ‘get the sums right’, in that a business may have significant value but this does not necessarily mean that the funds are available to buy-out the other spouse, particularly if the family home is going to the other partner. In such circumstances or, for example, if both spouses are genuinely active in the business, a clean break could be difficult and the parties will have to either work together or at least share in the business in order to maintain the income stream until the business can be sold.

If you would like to discuss valuing your business or that of your spouse, please call Malcolm Coomber on 020 8652 2450 or email mec@clarksonhyde.com