What happens to a business in a family law dispute?
As Australia’s entrepreneurial spirit thrives, many couples in the “Great Southern Land” co-manage businesses, be it multinational companies, local businesses, small enterprises, or start-ups.
However, when there is a family law dispute involving a divorce, there is a big question mark on the future of the business a couple runs.
The impact of a separation on a family-run business can be complex and diverse.
But regardless of whether the business concerned is a large firm or a small company, there are some points in common that an individual dealing with a divorce should pay close attention to. The family law dispute points are:
What happens to the business after separation?
In most cases, one of the divorcing partners seeks to retain the ownership of the business. If both individuals reach an agreement, they will need a lawyer to draft an order for it to happen.
While it is unusual for two divorced spouses to proceed with a business, it occasionally does happen, mostly in high-profile ventures. In such cases, the separated spouses mutually determine the holding pattern of the company.
If both individuals do not want to continue the business, they will have to find a buyer who will take over their shares in the business. If the deal goes through, the separated partners can then divide the sale proceeds between them in an equitable manner.
Property settlement
As both individuals are starting a separate financial life, property settlement becomes mandatory in a divorce.
The Australian family law treats a business as a property.
Therefore, as with any asset, such as the family house, the property settlement includes the valuation of the family business.
However, dividing the resources of a business, whether it is a large company or a small firm, can be a complicated affair because the separated individuals might own some aspects of the business jointly, while other things may be held by only one partner.
To work out an equal share of the business, the divorced spouses may need to hire a lawyer to determine the value of liabilities and assets that they own individually and collectively.
If both sides agree on the split, there can be a fair and mutual property settlement.
If the expectations of one person are not met, and there are disagreements, then the settlement process becomes more complicated and the chances of the case going to the family court gets higher.
To protect the interests of both sides, the family court may decide to order the dissolution of the business.
Valuation of the business
To simplify the division of the business, and come to an agreement, both parties can appoint their own lawyers or independent valuers.
There are various ways to estimate the value of a business, based on its structure, type, and size.
However, a valuer or lawyer will most likely consider the following factors:
- Whether the organisation is continuing its operations
- Current and future cash flow estimates
- Stability in income
- Profit estimations
An experienced lawyer’s business valuation report not only brings clarity, but it can also be presented in the court to assess each side’s entitlements in a fair way.
Seek professional legal advise
Before taking any action, get in touch with an expert family lawyer who can draft necessary orders, negotiate the property settlement process, prepare the Shareholders Agreement, and represent your interests if the matter goes to court.
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