Experts: Law

Separating from a life and business

 DIVORCE | KATHERINE HAWES

WHILST the marriage rate has declined by about 41% it is a sad but fact that one in three Australian marriages will end in

divorce.

Therefore, if you are a married business owner, this roughly equates to one in three family businesses breaking down or experiencing a shareholder dispute because of this separation.

The nature of divorce on your business

The very nature of divorce is based on the fact that you and your partner can no longer be together. So, if you and your partner are having irreconcilable diff erences then you need to evaluation if you can continue to run a business together.

If you do decide to continue the business, minimise the disruption by implementing formal arrangements as to the management and running of the business. This agreement needs to include how the business will be run, how profi ts will be divided and who has power to do what.

There should also provide for an exit strategy. For example: What happens if one of you wants out of the business or get's married again? Who inherits portions of the business in the case of death?

Make sure all this information is documented and reviewed on a regular basis. Do not forget to update your will as well to ensure that it refl ects your intended benefi ciary.

Deciding to close the business

There are a couple of options to deciding to close the business. The fi rst is to close the business and each person gets a share of the assets OR one party buys out the other.

If you do decide to close the business, it usually includes selling off all assets and separating them between the parties. This is known as the ‘clean break principle’ and aims to give the parties a fresh, new start with no remaining connection to their former spouse.

However, in these cases, often the family business is undervalued and sold off for an inadequate amount.As a result, the business is of far greater value if it continues to operate as per usual.

Therefore, it is best to consult with your fi nancial planner and accountant to see whether your business will retain higher value if it continues to operate, or it is sold off .

If one party is buying out the other, it is best to get a valuation and place the asset into the total asset pool. There will then be an estimate of how much each party is entitled to from the asset pool. For example, one person may retain the business and the other person may get a higher percentage of the family home when the asset pool is divided.

Summary

Divorce is diffi cult at the best of times, but it does not have to mean the end for your business.

As your family lawyers we will always do forensic analysis of the asset pool to ensure that all assets are disclosed before we propose an asset split percentage. Once the split is determined by consensus, we will then be pragmatic as to how the assets are divided based on your

instructions to us.

If the assets cannot be divided by consensus we will then end up in Court. It is in the best interests of both parties to approach fi nancial disclosure and asset splitting by working together to get a mutually benefi cial outcome.

Katherine Hawes is a solicitor and barrister who owns and operates Digital Age Lawyers. She has over 20 years’ experience in commercial law and will guide you through your business legal strategy. www.digitalagelawyers.com

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