How would a divorce affect my business?

How would a divorce affect my business?

By cropped Clara Suki

· Read time: 4 minutes

The law considers a person’s equitable interest in a business as property for the purposes of property settlement. Hence, a business owner going through a separation or divorce may find that retaining full ownership of a business could significantly affect the amount of other assets they are entitled to. 

How the assets are divided

The first step in a property settlement is to pool all assets owned by both parties together. If one party has a business, this will be included in the asset pool. This will mean that both parties need to reach an agreement about the value of the business. Parties can choose to do this by hiring a qualified accountant. 

It is notable that for family law purposes, businesses with different structures are valued differently. For example, a sole trader or partnership will be valued differently to a corporation. 

Next, the Court will evaluate the financial and non-financial contributions each party made to the relationship. Another consideration the Court will take into account are the future needs of both individuals. 

In light of all these considerations, the Court will then aim to divide the assets in a just and equitable manner. It follows from there that if one party owns a business and decides that they want to remain in full ownership of it, this will generally affect their entitlement to other property in the asset pool. This will especially be the case if the business is a large asset that makes up a large proportion of the asset pool. 

In some cases where the business is owned by both parties, one party may choose to  buy out the other party. Another option is for the business to be sold and for the proceeds to be split equitably. 

The split of property between parties will ultimately depend heavily on each party’s circumstances. There is no set formula for property settlement. 

How is a property settlement conducted? 

A property settlement can be conducted in various different ways. Depending on the specific circumstances of the divorcing parties, an individual can choose to: 

Enter into a property settlement by negotiating privately with their other partner. 

Whilst this option is generally cheaper and more time efficient, it is important to note that informal agreements are not legally binding.

This means that if one party deviates from the agreement there will be limited legal ramifications. Hence, it will be worthwhile to consider taking the informal agreement to Court and having consent orders made. 

Enter into a Binding Financial Agreement (BFA)

These agreements require each party to obtain their own legal advice before the agreement is made. A binding financial agreement can be entered into at any stage of a relationship, including when it has broken down. Once a binding financial agreement has been created it is legally binding on both parties. 

Creating a binding financial agreement before a relationship breakdown can help an individual protect certain assets that are important to them. For example, creating a prenuptial agreement at the start of a relationship can allow both partners to agree to protect existing assets such as businesses, from the property settlement process later on. 

Pursue litigation through the Federal Circuity and Family Court (FCFOA)  

If divorcing parties are not on amicable terms or are unable to come to agreem, they may instead choose to undertake the property settlement process with the Court’s assistance. If parties choose court intervention, it is important to remember that there are certain time limits to abide by. For divorcing parties, an application must be lodged within 12 months of the separation date. 

If you need any assistance regarding property settlement or any aspect of Family Law, then feel free to get in touch with us.

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