If either you or your partner own a business or have an interest in a business and are going through separation or divorce, questions around who gets to retain the business will arise. For the business owner who might be reliant on that business for their personal income, this can make the property settlement process particularly concerning.
Whether you own a small family business, a start-up, or a large enterprise, within this article Graeme Freeman (Principal at Freeman Family Law and Accredited Family Law Specialist) answers some frequently asked questions relating to business and family law property settlements.
Is My Business Likely to Be Considered an Asset of a Marriage?
Under the Family Law Act, a person’s legal or equitable interests in a business whether held solely or jointly with another individual are considered to be relationship property. This means that a business would be added to the pool of property that is available for division between the parties. In most cases, the person who runs the business will want to retain it intact. What that person receives will depend largely on the value of the business and the value of the other assets held by the parties at separation (and after), including their property, investments and superannuation.
Who Decides What My Business is Worth?
Property settlements are more complicated when a business forms part of the pool, particularly if the business involves complex financial structures. The business owner’s accountant can be critical in helping determine the true value of the entity. The accountant usually has an intricate knowledge of the business, how it works and what it’s strengths and weaknesses are.
Unfortunately, the parties cannot always agree and there will often be a dispute about the value of a business. In these circumstances the parties will appoint a joint-expert forensic accountant to value the business. This is usually done by either looking at the past performance of the business and/or by valuing its assets.
This is a complex and subjective process and values can vary widely. It is essential to have a family lawyer who understands what information is required and how best to present it to a valuer.
Will I Need to Sell My Business?
In most cases the person who conducts the business will want to retain it intact as part of the property settlement. This can be achieved where there are sufficient other assets to achieve an equitable distribution of the pool. In rare circumstances where the business is the only asset, or represents a major portion of the assets, then a sale may be required. If the business is highly profitable it is often in the best interests of both parties for it to be retained intact, particularly if the parties have children. In such circumstances there are various settlement options available that may help prevent a sale, for example staggered payments that may or may not be linked to future profitability.
How Do I Protect My Business in the Event of Separation?
We always say that ‘prevention is better than a cure’, so if you own a business or are looking to start a business, it’s critical that you receive advice from an experienced family lawyer about how best to protect your business in the event of a separation as soon as possible. If you are in partnership with another person, you should advise them to do the same.
At Freeman Family Law we have assisted hundreds of business owners navigate their separation and achieve a final outcome with their business intact. As accredited specialists in Family Law, we have the experience and knowledge required to ensure a correct business valuation and that all tax considerations are factored into the settlement.
If you are a business owner who is considering separating, you want to protect your business, or if you wish to ensure that the proper value of the business is taken into account, call us today for your first consultation.
Freeman Family Law has been assisting clients for over 30 years on matters involving divorce or separation, complex financial and property issues, as well as advice on parenting and wills & estates. Book an appointment with an Accredited Family Law Specialist online or at one of our offices in Yarraville, South Melbourne, Caroline Springs, Essendon or Mornington.Enquire Now
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