Separation or Divorce and Business Ownership: What Are Your Rights?

If you or your partner own a business and are are considering separation or divorce, questions around business ownership are likely to arise. In addition, there can be a number of challenges to navigate through - and not just for the parties to the relationship. These challenges may arise for anyone running the business, any other business partners, as well as any shareholders or those with a vested interest in the business. 
Whether it’s a start-up, small business, local business or even a thriving multinational, we share what you need to consider, and what your rights are when it comes to separation or divorce and business ownership. 

Is My Business Likely to Be Considered an Asset of a Marriage?

All business interests in a marriage or de facto relationship - whether held within a partnership, as a sole trader, a company or a trust structure - can be considered an asset of a parties according to Family Law Act. 
Just like marital assets, the court will take the following steps in a property settlement following separation or divorce to determine the division of a business, or if another solution is to be reached:
  • Identifying and attributing value of assets and liabilities
  • Assessing financial and non-financial contributions such as one party being the primary home carer
  • Considering the “future needs factors”
  • Whether these processes are just and equitable
 The way the business is structured and how it is operated may impact how the business is dealt with during your family law case.

How Do I Protect My Business in the Event of Separation? 

If you are in a relationship and own a business, or you are in a relationship and looking to start a business, legal planning is key and we suggest you speak to an experienced Family Lawyer before to start. If you have a business partner, ask them to do the same. 
You may wish to enter into a binding financial agreement so that you and your partner agree how assets will be divided in the event of separation.  This can be entered prior to or during your marriage/relationship.

Will I Need to Sell My Business? 

One of the most commonly asked questions when it comes to separation or divorce and business ownership, is “will I need to sell my business?”
You will only need to sell your business if both parties agree to do so, or if an equitable division of your assets can’t be effected through the division of other property.  Similarly, if the parties can’t agree on the value of the business, it will need to be valued by an appropriate expert. Until a valuation is reached, you won’t be able to move forward with your family law settlement 
Once a valuation has been obtained, this will help to facilitate negotiations between the parties, which may include options such as one party purchasing the other party’s share in the business and/or other assets, swapping assets of similar value, or rearranging business operations to suit both parties.
If an agreement cannot be reached, and the property dispute is referred to the Court, the valuation may also be used by the Court to assist in determining the outcome.

How is a Business Valued?

Determining the value of a business can be very difficult. 
In a separation or divorce, when a business is valued for the purposes of a property settlement, it is not necessarily the same value assigned to a business if being prepared for sale.  
A property settlement valuation determines the value of the property to the owner; the benefits that the owner would receive if they continue to maintain their interest or role in the business. However, the valuation will reflect the fair market value of the business.
Just like a relationship, no business is the same, so there is not a single method that is used to determine the value. 
The valuer may consider things like whether the business is currently in operation, if the earnings are stable, any businesses assets and liabilities, and how the business is categorised, such as is it categorised as a sole trader, spouses in partnership, a company-held business, or even in a trust arrangement?

Have More Questions About Separation or Divorce & Business Ownership?

If you are in the process of separation or divorce and have questions in regards to business ownership or assets, we suggest you obtain legal advice at the outset to ensure you have all the required information before making any agreements when it comes to property settlements or valuations. At Pullos Lawyers, we can speak to you about how to protect your assets, as well as how best to approach your separation and property settlement based on you and your business’ requirements. We can also assist with separation & divorce law, spousal maintenance and child custody law. We invite you to get in touch for a free consultation.