A business, in which one or both of the parties on divorce has an interest, is a financial resource which the court considers when determining a fair financial outcome. This will be determined in accordance with what are called the s25 factors.

S25 Factors: What does the law say?
These are the range of factors set out in s25 of the Matrimonial Causes Act 1973. These factors include; the needs of the parties, the standard of living enjoyed during the marriage, income and earning capacity and contributions made during the marriage.

The court treats business interests as a resource of the parties under section 25(2)(a) of the Matrimonial Causes Act 1973.

The court has two essential functions in financial remedy cases involving businesses:

To establish the value of the parties’ interests in the business.
To decide how that value should be reflected in the final financial distribution.
The decision about whether to value a business in proceedings for a financial remedy may not be straightforward and it is essential to obtain expert legal advice before proceeding with a valuation.

Step 1: Valuing a business
There are several different methods an expert may use to value a business. The expert will value the business taking in account various factors, for example, the assets that the business owns, the business earnings and profit and the way the business established and run.

In valuing a business, an expert may consider issues of liquidity and how money can be withdrawn from the business to fund a settlement, or the extent to which the business provides income to meet ongoing periodical payments (spousal maintenance).

Is divorce settlement money from a business taxable?
There are tax implications to extracting money from a business to fund a settlement and an expert should be asked to consider the most tax efficient methods of raising capital. If a substantial dividend is extracted to allow a party to pay a large lump sum and continue working in the business, both CGT and dividend tax may be payable.

What happens in regards to shares?
In exceptional circumstances, determining a fair financial outcome based on the current market value of shares may not be appropriate. For example, in B v B [2015] EWHC 210 (Fam) the husband was part of the senior management of a pharmaceutical company, in which he held shares and loan notes acquired during the marriage. The shares and loan notes were non-transferrable, and the court found that the wife should share in their future value as and when they were realised, by the husband paying her a lump sum or series of lump sums.

What happens if the business is not doing well?
The value of a business is not the same as the value of cash. In Wells v Wells [2002] EWCA Civ 476, the husband retained the majority of shares in the business, which was performing poorly and which the judge had found impossible to value. In addition, he was awarded £695,000 and the wife received around £1.35 million. The husband appealed and the Court of Appeal increased the husband’s share of non-business assets.

Step 2: Achieving a fair financial outcome
To achieve a fair financial outcome, courts may:

Divide the assets in specieto provide each party with a proportionate share of the liquid and illiquid assets
Transfer shareholdings held by one party to the other.
This would particularly be the case where the parties to the divorce are both shareholders in the business and would be in accordance with the ‘clean break’ principle (that former spouses should settle their financial affairs in a way so that financial relations between them completely come to an end).

It would be rare for a court to order the transfer of shares to another party where only one party owns shares in the company as this would go against the clean break principle. It could also cause disruption to the running of the business.

Apply a discount to illiquid assets received by a party.
The court also has the power to order a sale although a court will rarely do so because often, a business will be a source of wealth for the parties that, if sold, would bring an end to the income that it generates. Also, if a substantial part of the family wealth is the business, its liquidity might make it difficult to achieve a clean break.

If you would like any further information on how the court treats business assets on divorce, then please do not hesitate to contact a member of our team for a confidential discussion about your personal circumstances.

An Employment Tribunal has agreed that an electrician experienced sex-related harassment when his baldness was insultingly referred to by his supervisor.

Harassment
Under Section 26 of the Equality Act 2010, a person harasses another person if:

their conduct is unwanted and is related to a relevant protected characteristic; and

it has the purpose or effect of:

violating the other person’s dignity; or

creating an intimidating, hostile, degrading, humiliating or offensive environment for that person.

The relevant protected characteristics under Section 26 are:
age;

disability;

gender reassignment;

race;

religion or belief;

sex; and

sexual orientation.

The case
An electrician was employed by a manufacturer for a number of years before being dismissed.

A couple of years before his dismissal, the electrician got into an altercation with the factory supervisor, who threatened him with physical violence and called him a ‘bald c***’.

After his dismissal, the electrician brought several tribunal claims against the company, including a sex-related harassment claim regarding the comments made by the supervisor.

The Employment Tribunal

The electrician’s harassment claim was successful.

The tribunal found that the language used by the supervisor was unwanted and went beyond the usual ‘industrial language’ of the shop floor by remarking on the electrician’s personal appearance.

It further found that the comment purposely violated his dignity and created an intimidating, hostile or degrading environment for him.

The main question that the tribunal had was whether the comment related to a relevant protected characteristic.

To answer this question, it drew an analogy to another case where a manager’s comment on the size of a woman’s breasts was found to be sex-related harassment.

In that case, it was found that the comments were highly likely to relate to her gender.

Similarly, the tribunal said that because baldness is more likely to affect men than women, calling the electrician ‘bald’ did amount to harassment as it related to his sex.

The level of compensation the firm will have to pay hasn’t yet been decided.

What this means for you?
This case is a reminder to be aware of the dangers of workplace ‘banter’.

Unwanted comments about a person’s appearance (related to a protected characteristic) could be considered harassment.

These comments don’t specifically have to target a protected characteristic to be considered harassment under the Equality Act, they only have to relate to one.

You have a responsibility to take reasonable steps to stop harassment from taking place and to create a safe working environment at your business.

You can do this by implementing an anti-harassment policy that outlines the consequences of commenting on personal appearances and informs employees that you won’t tolerate such behaviour.

You can use the Harassment Policy in our Employee Handbook for this purpose.

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