A divorce can be a complex and emotional process, and it can be especially challenging when a business is involved. There are a number of factors to consider, such as the ownership structure of the business, the financial contributions of each spouse, and the future of the business.
A business is considered an asset, just like property or cash, and therefore can become part of the asset pool which is divided during a relationship breakdown. This is the case even if a spouse doesn’t have legal ownership of the business. They may still be entitled to a share of the business depending on their contributions and other considerations.
While the ownership of the business will impact how it may be divided, that doesn’t mean that spouses without legal ownership can’t claim a share. They may be entitled to a share of the business’ value, depending on their contributions to the business and the other factors considered by the court.
The good news for business owners is that there are alternative options to selling the business entirely, such as buying out your former spouse’s share, restructuring the ownership, or maintaining joint ownership with clear agreements in place.
If the parties cannot agree on how to divide the business, one option is to sell it. The proceeds from the sale can then be divided between the parties. Selling a business can be a complex process, and it is important to get professional advice. A lawyer can help you to negotiate the sale and to ensure that you get a fair price.
Selling your business before or during a divorce: the steps
Here are some steps business owners can take when selling their business before or during a divorce.
Seek an expert valuation
Accurately valuing a business is crucial for determining the property pool and ensuring a fair division of assets. Engage a qualified business valuer to assess the business’s worth, considering factors like financial performance, market trends, and future prospects.
Consider the timing of the sale
The timing of the sale can significantly impact the financial outcome and emotional toll on both parties. Selling before divorce may allow for a more amicable settlement, but it could also limit your control over the process. Selling during divorce may provide more flexibility, but it adds to the complexity of the divorce proceedings.
The value of a business can fluctuate over time, but that doesn’t mean parties can delay negotiations in order to create a more favourable valuation. Often a business owner will seek as low a business valuation as possible so they don’t have to give up as much and their spouse will want the opposite. In Australia, a financial settlement can occur at any time from the date of separation. However, there is a two-year time limit for de facto couples and a one-year time limit for married couples after divorce is granted. Consulting a divorce lawyer can help you navigate the legal and financial implications, ensuring that the sale aligns with your best interests.
Be mindful of tax implications
Selling a business during divorce can trigger tax obligations including capital gains tax, GST, income tax or property tax. Consult with your lawyer and accountant to understand the tax consequences and ensure you’re compliant with relevant regulations.
About Kristy-Lee Burns
Kristy-Lee Burns is a Partner at Owen Hodge Lawyers. Kristy-Lee has headed up the Family Law department since 2018. Kristy-Lee has trial experience in various complex family law matters involving trusts and commercial matters. Kristy-Lee has expanded her knowledge and experience to include Estate Litigation and Testamentary Trust Wills.
Kristy-Lee has completed a specialist post-graduate program of LLM Applied Masters (with a double major in Family Law and Business Law). Many areas of family law and commercial law intersect so it is important to Kristy-Lee that she identify and strategically advise her clients on these matters. Her trial experience in preparing matters with strict deadlines is also a skill that serves her clients well.
Kristy-Lee’s legal knowledge, communication skills and life experience, together with her ability to relate and connect with people in challenging times assists her in building and maintaining excellent client relationships and ongoing referrals. Kristy-Lee also prides herself on mentoring and managing other younger solicitors within the practice.
Whether it is a complex property settlement involving third parties, businesses and trusts, a commercial or estate dispute, Kristy-Lee has the knowledge and expertise to identify the key legal issues whilst advocating in your best interests for a just and equitable result.
