Family Owned Businesses and Divorce

According to the Australian Bureau of Statistics the current divorce rate in Australia is just over 40%. In conjunction with families owning 70% of Australia’s 2.1 million businesses and 46.2% of those family owned businesses being ultimately held and controlled by husband and wife couples, accumulates to a countless number of separating couples owning businesses together.

The main issues and questions separating couples who are also in business together are:

• How do we separate the finances and ‘untangle’ our financial relationship?
• Does one partner have to buy out the other?
• How much would it cost to buy out the other?
• How do I ensure the property settlement is fair, especially if I’ve equally contributed to the family business?
• How are future earnings from the business considered?

Seek Legal Advice

The best way a family business can cope with the event of a divorce is to plan for it early in the business or marriage.

However, if no contingency for divorce has been planned you should seek advice from an experienced family lawyer as soon as possible to determine what to do and what to expect when approaching divorce and family business before taking further action.

Remember every business and marriage is unique, it is hard to generalise outcomes and what likely result you may achieve without seeking professional legal advice.

Separating Finances: Property Settlement

A significant complexity in divorce is establishing financial independence, which obviously can be difficult when a family business is involved.

Property settlement is an important step in any separation or divorce in determining separate finances.

A property settlement involves pooling the assets and liabilities jointly or solely owned by the parties. The pool of property is then divided equitably to meet each party’s entitlements. The division also takes into account non-financial contributions made to the relationship, such as primary parenting and maintain the home.

As businesses are treated as property under family law, the value of the family business is included in the property settlement just like any other asset, such as a car or the family home.

The difficulty here is establishing the current value of the business as well as what the potential future value might be to include into the pool of property to be divided.

Until a value is agreed upon, negotiations might be difficult and it will be hard to determine a fair settlement.

If the parties are unable to agree on the value of their business and therefore a property settlement cannot be agreed upon, it will be necessary to have the business valued by an independent valuer.

Related Article: Property Settlement and Divorce: Key Facts You Need To Know

Business Valuation

An independent valuer will value the business for the purpose of the property settlement, which is not the same as the value of the business if it were to be sold. In a property settlement, the valuation looks at the value to the owner, for example, what are the benefits that the owner would receive if they retained their interest in the business.

Depending on the size and type of business, an independent valuer is likely to take into account:

• The stability of the earnings.
• Estimations of future cash-flow.
• Estimations of profits if the business were to be sold.
• Whether the business has stopped or is continuing operations.

Once the valuation has been calculated, it can be used in the property settlement proceedings. In most cases, it will help to facilitate negotiations between the parties and hopefully allow them to reach a fair and amicable property settlement.

However, if an agreement is not reached the property dispute will be referred to the family court.

If you take the proper steps, the end of your marriage does not have to mean the end of a business. Many couples are able to negotiate fair settlement of their assets, including their business. Though not for everyone, there are also many possible solutions for ex-spouses in running a business together, which an experienced family and divorce lawyer will be able to help you with.

Note: This is general information advice only and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters, please contact us on 03 9620 0088 or email info@resolveconflict.com.au