Protecting Your Business During Divorce

Avoiding a “Succession” like drama when dealing with business and divorce can be tricky and emotional.

How a business asset is divided during divorce can depend on the structure of your business.

If you operate as a sole trader, most of the time, the business is kept by the person who has the skill and training to keep running the business. 

If two partners are in business, they can choose to continue running the business together, but in most cases, one partner will buy out the other. They may choose to sell the business entirely, and how much each person receives depends on the value of the business and who has contributed what to it.

If a business is structured as a company, what happens to it in a divorce depends on whether it’s a family company or has third-party shareholders. If it’s a family business, it will be treated much like spouses in partnership. If it has third-party shares, then the value of the company’s shares will need to be determined to be included as part of the property pool. 

One case, Grimmond and Hartin, demonstrates just how bitter disputes over business can get. During this case, a couple were in a de facto relationship for more than 30 years and had two adult children.

The couple were directors and equal shareholders of a successful business. One of the adult children was an employee of the business, and it’s likely his involvement was important to the company’s day-to-day running.

In the wake of the relationship breakdown, the father and one of the adult children set up a second company. The mother told the court she was concerned that the new company would compete directly with the original family business. She was concerned the son’s “conduct may well be considered as a breach of his fiduciary and director’s duties” to the original family business.

All parties were unable to resolve their differences, with some severely acrimonious correspondence between the mother and one of her adult children. 

The court ruled the father and son were restrained from providing any financial documents relating to the financial position of the original family business, and they were restrained from extracting any information from the business’ client list; as well as being restricted from suggesting any existing clients that they trade with any other business, including the new one.

This case highlights the need for a binding financial agreement between you and your former partner.

Even if your ex has not played a direct or active role in setting up and running the business, a separation or divorce could still significantly disrupt your business and livelihood.

Don’t forget that all assets, income, profits and even interest earned by you and your spouse during the marriage become relevant in negotiating a settlement. 

Ensuring your business paperwork is kept up to date will be a massive help for you and your lawyer.

Bickell & Mackenzie can help you with all aspects of financial agreements, property settlement, and any other issue relating to separation and divorce. Contact our office today on: (07) 3206 8700 or email: info@bimalaw.com.au

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