When a de facto or married couple separate, there are time limits within which a division of assets (a property settlement) must occur. Property of one or both parties to the relationship that must be taken into account includes any business interests.
How are business assets divided after you separate?
One of the first steps in the property settlement process is that both parties to the relationship must provide ‘financial disclosure’: each is required to disclose to the other all of their financial information, including business interests.
This requires full and frank disclosure of all assets owned before the commencement of the relationship and acquired during the relationship – either solely or jointly.
Business owners must undertake a valuation of any business interest. This is irrespective of whether one or both parties have business interests and one or both parties are involved in the same business. Where there are doubts as to the accuracy of the business’ valuation, a forensic accountant may be brought in to verify the original valuation.
Once your lawyer has the full picture, they can advise an estimated range of what the property settlement outcome will be, which is expressed as a percentage. No lawyer can ever provide an exact percentage, due to the discretionary nature of how a settlement is determined. That is, how a Judge may rule if your matter ever were to end up in the Federal Circuit and Family Court, is never guaranteed.
Whether business assets need to be divided at all will depend on whether the other party’s entitlement can be funded in another way.
Can you lose your business in a separation?
Yes, it is possible. While there are asset protection mechanisms available to minimise such risks, your business forms part of the property pool and may need to be sold to pay the other person their entitlement.
Selling the business or selling off its assets may be required if there are insufficient funds to fulfil the terms of the property settlement agreement (or court decision). However, other options can often be negotiated to reduce the risk of this being necessary.
Can I sell my business before separation?
If you sell your business, that will not disentitle your former partner or spouse to any of the proceeds of the sale. It is prudent to consult with your accountant and lawyer if you are considering selling before taking steps to separate.
Are you the advantaged or disadvantaged party, or neither?
Even where both parties to the relationship have been directors in a business, one person generally has more clarity and insight about the day to day running of the business and it’s finances. Often, one party may be considered ‘the advantaged party’ and the other ‘the disadvantaged party’.
One party may be disadvantaged because, in addition to the significant emotional load accompanying separation, they find that they are required to get up to speed about the business’s profitability and operations, which can take considerable time. If the other part is reluctant reveal information, that adds additional time and stress. This is common where one party has had the more significant relationship with the business’s accountant.
Information to gather early
For parties with business interests between them, their most pressing need is to have access to:
- the financial position of the business; and
- how funds are being taken out of the business.
Where this information is not provided quickly and readily, legal advice about how to approach this will help to expedite access.
Business financial position
It is not your lawyer’s role to review the finances: your accountant must provide you with this information. To calculate the property settlement range as accurately as possible and structure a settlement, information your solicitor will need includes:
- the business’s debts;
- how those debts are managed; and
- how any loans are serviced, if there are any bank guarantees, and if a rollover period is imminent.
How money is taken out of the business
Funds are taken out of the business in different ways depending on it’s structure.
Steps have often historically been taken to minimise overall tax for a business and its directors. However, those steps may no longer benefit one party to the relationship. Working together, your lawyer and your accountant can obtain the information required to pre-empt potential risks and help progress the property settlement process.
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