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How to Manage Divorce With Business Involved in Australia?

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divorce with business involved

Family law affects more than personal matters. A divorce or separation can pose a threat to business entitlements as well. How can you preserve your business income and assets during a property settlement? Let’s explore divorce with business involved and how to prepare for the future.

Business structure

Before making any decisions about how you will protect a business interest, consider your business’s structure. This can play an important part in how the Court chooses to divide business assets. If you are the sole owner, or have a family owned business with your ex-partner, the Court will typically treat it similarly to other marital assets.

If there are third party shareholders or partners involved, the Court may be less willing to grant orders to impact their interests.

Trusts

Business interests held in trust may be protected under certain circumstances, but this isn’t guaranteed. The High Court’s finding in Kennon v Spry identified two primary considerations for whether assets held in trust will be considered property.

  1. The degree of control the parties to the marriage have over the trust, and whether they’re beneficiaries.

  2. Whether one or both spouses have contributed to the trust and enjoy the use of those assets.

If neither of these criteria are met, the trust will be excluded from a property order.

protect a business from divorce

Being prepared from a divorce with business involved

There’s a lot of preparation necessary when protecting a business during a divorce.

Maintain records

Keep clear financial records regarding business income and expenses as well as documenting assets and liabilities. Regular valuations are important. It’s also worth keeping personal and business assets divided to avoid mixing your finances.

Document contributions

If both spouses are involved in the business, keep track of each party’s contributions such as their role and salary. Also, record any investments and financial contributions made by either party.

Consult experts

Speak with a financial adviser as well as a family law expert to ensure your financial strategy and proposed financial agreements offer adequate protection.

divorce agreement

Prenuptial agreement

If you have business ownership interests, a prenuptial agreement can be very useful. Known as a binding financial agreement (BFA) in Australia, these agreements can help protect business assets. The major advantage of a BFA over consent orders or property orders is that you can create a financial agreement during or even before a marriage. If marital assets are divided by the Family Court after separation, family business assets can be vulnerable to a claim by your ex-spouse.

A BFA can help maintain continuity in business operations by stipulating who will continue to run the business after a divorce. You can also include a provision for one party to buy out the other at a pre-determined price or through an agreed-upon business valuation method.

Buy-sell agreement

If you’re in a business partnership, it’s important to have plans in place to protect your partners during a divorce or property settlement. A buy-sell agreement is a common way of providing this protection. This agreement provides that you will sell your interest in the business to the other partners once a trigger event occurs. In this case, the event would be a divorce or separation. This restricts ownership to the remaining partners and prevents an ex-spouse from gaining an interest.

It’s vital to get an accurate valuation of the interest. This can be done in two ways:

  1. Obtain a market valuation from an independent valuer.

  2. Set a pre-determined valuation agreed to by your partners and adjusted as necessary.

Conclusion

Business interests can make divorce settlements tricky to navigate. You need to consider the business’s ownership structure and the best way to protect your interest. Trusts may offer protection in limited circumstances. However, a BFA offer excellent flexibility and can be drafted at any time. Buy-sell agreements protect third party partners in the event of a divorce.

If you’d like to seek legal advice, contact our office for a free discovery call.

The above information is intended to be general advice only and is not a substitute for personalised advice.  Because it does not consider your individual circumstances, it is not intended to be relied upon and any loss or damage arising from any such reliance is disclaimed.  Any financial or legal decisions should only occur after you have received tailored advice from a legal or financial professional.

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Luke Shanahan

Principal

Luke Shanahan is the Principal Solicitor of Shanahan Family Law. Luke has been practising family law since 2008 and started his firm in 2014. He has three beautiful daughters and a supportive, gorgeous wife. In his spare time, Luke enjoys playing tennis and trips to the beach with family and friends. 

Luke is dedicated to providing the best possible legal representation for his clients. His experience and passion for family law set him apart from other solicitors. You only have to read their 5-star reviews to understand that.

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