Things To Know About A Business In A Divorce Situation

In a divorce situation, the assets and liabilities of both parties, regardless of legal ownership, are considered to be in the marital pool of assets with respect to a property settlement, including a business.

When a couple separates, if they are not able to negotiate a property settlement between themselves, their combined pool of assets and liabilities may be considered by the Court to determine the terms of the property settlement. If there is a business involved, the value of each party’s business interest will need to be established.

All business interests will be considered, whether it is a sole trader, partnership, trust or corporate structure. The key issue is the value of each party’s interest in any business, whether owned separately or jointly.

During the process of resolving a property matter, each party is obliged to make a full and frank disclosure of all their business interests and make available any documents that are relevant to the value of their interest. The provision of current and accurate information and documents is important when valuing a business in a divorce situation. It is advisable to seek specialist legal, financial, and accounting advice.

It is also important for both parties to acknowledge the importance of the business maintaining its value, which means minimising interruption and any negative effect to its normal operations.

What happens if both parties work in the business and decide to separate?

In most instances where parties work together, the parties will likely elect to end their working relationship after separation. The parties, or if agreement cannot be reached, the Court, will need to decide whether one person is to retain the business without the involvement of the other or whether the business is to be sold and the proceeds shared between the parties.

If one person retains the business, the Court may deem it to be a financial resource when considering the future needs of the parties.

Situations where a couple continues to have an interest in a business, despite their separation or divorce, are rare. In generally terms, the Court seeks to provide separating couples with financial independence, with finality. In other words, if a separating couple were to continue to have mutual business interests, there would need to be a plan to work towards financial independence in the foreseeable future.

When a business is valued for property settlement purposes, it would be usual to engage a professional business valuer for that purpose. Valuers use various valuation methods and will take into account the type and size of any business when determining the most suitable method. Net assets, goodwill, profitability, income protection entry barriers, yield, market potential will all be important considerations.

A sole trader is a ‘personal exertion’ enterprise which may have only one ‘worker’. As the name suggests, a sole trader may rely on the skills, efforts and reputation of a single person (such as a tradesperson, freelancer or professional consultant). In such cases, the goodwill of a sole trader business will be carefully considered by a valuer as to whether it is personal goodwill, or belongs to the business.

Whereas if a business employs many people and could be sold as a going concern (under management), the value of any goodwill may be more likely to be considered that of the business.

A divorce does not automatically entitle one party to half of the business.  The Court will consider the division of the assets on a case-by-case basis.

In resolving a property matter, it is important to have current and accurate information and documentation for any family-owned business, regardless of its size or structure.

In conclusion

Negotiating a property settlement can be challenging, and if there is a business included, working out the asset pool can complicate matters further.  It is always advantageous to have a skilled family lawyer to guide and support you through the process so that you can achieve the best outcome. 

If you have any questions about a business in your divorce situation, West Family Lawyers can help.  We are a well-established firm of family lawyers in Perth with a strong reputation for integrity and empathy, and we will work hard to achieve the best solution for you and your family.  You can get in touch through our website or by giving us a call on 9380 9111.

Please note that this article is general in nature and does not constitute legal advice.

Mark Cheveralls

Mark is a senior lawyer with a broad experience in family law.  His blend of business management experience and legal competencies is particularly beneficial to resolving complicated family law disputes concerning property and children.

Mark is settlement-focused and energetic about negotiating fair outcomes with a track record of brokering good results for his clients.  He is part of a small team of trusted family lawyers in Perth practising in the Family Court of Western Australia.

Find out more about Mark here.

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