Queensland Law: Divorce with a Business Involved in Australia
What's involved when you're heading for divorce and you own a business?
If you and your spouse have a business together but divorce is on the horizon, you have a few options. Owning and running a family business may be something that you love. It can feel stressful to think about what may happen to it when you divorce.
Sometimes deciding what to do with your business can become a sticky situation because your marital life and professional life are so intertwined. So, let’s explore your options depending on what outcome you want.
Family Business and Divorce: what are the possible outcomes?
There are three ways that you can move forward after divorce when you have a business:
- Sell the business and split the assets
- Have one partner sell their share in the business
- Continue your business together
Talk to your family lawyer or divorce coach about what is important to you. Sometimes taking the more unconventional path can work for you.
What if the business belongs to one partner and the other is not involved?
If division of property is left to the Court, a business will be treated as property regardless of whether the business is a sole trader, partnership, or company. Shares in a company are also considered to be an asset in the property pool.
This means that it does not matter how involved each spouse is in the business or how much a business is worth. The Court’s solution may involve selling the business. Depending on other assets, contributions, and necessary adjustments, it is possible that each of you may still receive a payout from the business.
Your contributions can depend on how much of an active role you had in the starting up or running of the family business. Especially for small businesses, you may be conducting some business in a home office or the less actively involved partner may be helping with the bookkeeping. Just remember that even if you or your ex is not involved in the business, you still may be entitled to part of it through the settlements or maintenance payment. To ensure that you have proper disclosure when valuing your property settlement, have a good record of anything relevant to your assets.
You can learn more about property settlements here.
Divorcing couples settling things outside of the Court may decide to sell the business or buy out the other. If you decide to have your partner or someone else own the business, make sure you properly follow all the requirements for transferring a business ownership. You’ll need to pay any outstanding obligations and organise tax, notify any stakeholders, and transfer all necessary licenses, documents, and records. The process is lengthy, so get your lawyer to help with your documents and requirements.
You may also come up with more unique solutions to suit everyone if you choose to make an agreement outside of the Court.
What if you’re in a partnership?
If the structure of your business is a partnership, don’t forget that it is an option to continue working together. You both may have started the business with a goal and want to see it through. Your business could be your passion, as well as the main source of income for both of you.
You may decide to do what we like to call a “collaborative divorce.”
Collaborative divorce involves negotiating and making agreements and decisions on your own without going to Court. Through this process, you can go at your own pace and work together towards a mutually beneficial outcome, often with the assistance of a neutral financial professional experienced with businesses and family law.
It could help you continue your business – learn more about collaborative practice for a business here.
If you decide to continue your partnership after divorce, be clear in how your roles will work for the business in the future. It takes work but it can be successful! Talk to your lawyer about how to formalise your agreement. Also make sure you keep open and transparent communication with any employees and clients about your situation where it is necessary.
What are the legal implications of staying in a business partnership and working with your ex?
For some people, they can continue their business relationship at arm’s length after divorce – that’s great! Over time it may become easier, but for others, emotions may get too involved and things get harder. Other aspects of your life and divorce, such as children, can negatively affect your business.
Maybe you’ll need to decide that it is time for you to leave the partnership, and that’s okay too.
Keep in mind that just because you choose to continue your business partnership doesn’t mean you need to stay if things don’t go well. Sometimes things don’t work out. This is why it is also important to have a way out of the business when planning your divorce, through some kind of binding agreement. Talk to your lawyer about your options.