Navigating separation can be challenging, even more so should you and your ex-partner be joined in business together. Working out how to deal with the business while you are separating, negotiating a final agreement or as part of the final property settlement is very important. There is no one size fits all approach to business, much like family law, however business interests will generally form part of the property pool available for division between you and your ex-partner.
Decisions surrounding who will continue to work in the business, what income distribution you should both receive, how business interests, assets, liabilities are going to be managed can have a significant effect on the value of the asset pool available to each of you after separation and the timing of any settlement. Even if your ex-partner does not have legal ownership of the business, they may have an equitable or beneficial interest under the Family Law Act 1975 (Cth) which means you should avoid dealing with the business or its assets and liabilities in any significant way unless you have informed your ex-partner and in some cases obtained their consent.
We have listed 6 steps to carefully consider when dealing with a family business as part of a property settlement:
1. Future ownership of the business:
Ordinarily there may be one party that is more invested in the business, or whose expertise is imperative to the continuation of the business. This can lead to a relatively straightforward agreement as to future ownership.
If both parties are equally involved in the business and neither wish to relinquish ownership, this can lead to more complex negotiations and agreements regarding the business going forward.
2. Invest in obtaining the right legal advice:
We recommend you obtain family law advice to seek clarity and structure as to the best way to deal with your business in the property settlement, or to discuss any possible transactions that you propose to take in respect of the business before reaching an agreement with your ex-partner.
The right approach for your business will be unique to your circumstances and will therefore require unique legal advice tailored to your circumstances.
3. Invest in an independent valuation:
To ensure that you have meaningful conversations and negotiations regarding the business, it is important that you understand the true market value of the business and what that value means in the context of the other assets, liabilities and resources owned by you and your partner.
Obtaining a valuation from an independent valuer, rather than the business’ accountant, is preferable so as to ensure that you are receiving an independent, unbiased view of the value of the business. A business valuation can be costly, but without it, it is difficult to get an informed understanding and value for the business, and the options available to you and your ex-partner.
If a valuation is too costly, then you may want to consider engaging your accountant to provide you both with an estimated value to assist with preliminary planning and developing a strategy for settlement.
4. Seek and ensure a clean break from the business or ex-partner:
Once an agreement has been reached between you and your partner in relation to what is going to happen to the business, it is important to consider the practical mechanisms required to formalise same.
Ascertaining and understanding the operating structure of the business is crucial so that we are able to ensure that that all practical steps involved with one party leaving the business are included in any formal agreement and completed appropriately. If you don’t know the operating structure, engaging the assistance of your accountant or obtaining documents regarding the business will be important to further understanding the best options to deal with the business.
5. Get an Accountant involved:
We are not accountants however we are aware that removing one party from a business may give rise to stamp duty or capital tax gain implications or exemptions.
It is important to liaise with your business accountant or independent accountant to ensure that when dealing with aspects of the business such as any loans owing to or by the business, removal of beneficiaries from a Family trust or transferring any assets from the business to either party individually, they are dealt with appropriately and any tax payable is correctly incorporated into the division of the property pool between the parties.
6. Ensure that the agreement is formalised correctly:
We can assist you in formalising any agreement reached with your ex-partner to ensure that it accurately and correctly reflects the terms of your agreement.
Taking the time to formalise the documents correctly will ensure that both parties will do all acts and things and sign all documents required to give full effect to any agreement reached and the financial intertwining of your relationship can come to an end.
If you have any questions – do not hesitate to get in contact with us to discuss a strategy and discover the options available to you in dealing with your family business through the separation process.
We are always willing and able to talk things through with you so that you can obtain clarity and structure as you navigate separation. Get in contact with us today (tel: (03) 8393 0144) .