How Does Divorce Impact the Family Business?

TGB family and divorce lawyer Jane Miller says the the number of divorces involving a business is growing, making the split of assets more complex.

As the largest family and divorce law firm in South Australia, we often pick up on social trends impacting couples, families and their relationships.

Without a doubt, separation is becoming increasingly complex. In this age, couples generally own more property and assets and it can be challenging working out who gets what, and how much, when the relationship breaks down.

At Tindall Gask Bentley, we are seeing an increasing number of family law clients who own a business with their former partner. There are a number of implications that will impact both the separating couple’s property settlement and the business:

1. The need to try and continue the running of the business whilst they work out the terms of their property settlement. In some cases the levels of conflict between the spouses can be so high that this spills over into the workplace and can affect the profitability of the business, as well as relations with staff and customers.

2. Staff can become concerned about their job security, especially if the business might be sold as a result of the divorce or worse still, closed down. They may also experience divided loyalties between the warring business owners. In some cases staff have been asked to lie by one of the owners to the former spouse, and fear that they might lose their job if they don’t follow this request.

3. The couple may not be able to cooperate and agree as to how the business should be run pending property settlement. This is especially a problem if both spouses were heavily involved in the business. Often in small business one person will do the books and the banking, and the other spouse might have the technical skills, such as a trade. If the couple splits, they might fail to cooperate to ensure the customers are serviced and the invoices sent and collected. If the level of cooperation is low, the business might suffer extreme cash flow problems or damage to its reputation.

4. In some cases the more dominant spouse might exclude the other from being involved in the business, leaving the other spouse without access to an income or information about the performance of the business. In the most extreme circumstances a forensic accountant must be hired to thoroughly analyse the business to ensure the dominant spouse has not inappropriately run down the business or hidden money.

5. Also in extreme cases it can be necessary to get urgent injunctive orders from the Family Court to stop one of the spouses transferring money or assets out of the business, or changing the corporate governance of the business.

6. The business structure can complicate the divorce, especially if it is a private company, family trust or self managed superannuation fund. It is important to get advice not just from a family law specialist, but someone who has a firm understanding of commercial law.

7. If the business is to be retained by one party who “buys out” the other party, then the parties will need to know the value of the business. Sometimes they can agree what the value is, but they should be wary of simply looking at the value on the balance sheet. There are many different ways a business can be valued, and sometimes a forensic accountant might need to help with the valuing process.

On a positive note, many couples are able to negotiate a fair settlement of their assets, including their business. In these cases appropriate advice should be taken as to making this settlement final and binding, and taking into account what would be a tax effective outcome.

Finally, some amicable separating couples are able to agree to continue running the business together after the divorce. This works well when they are able to put their personal differences aside, and can each bring a unique skill set to the business to maximise its profitability.

While owning a business can complicate the division of your assets, an experienced family and divorce lawyer will be able to guide you through this process.

TGB is South Australia’s largest family law firm. For advice about your divorce or property settlement contact your nearest TGB office.