Key Takeaways

• Learn how to protect your business assets during a separation.
• Understand the role of valuations and ownership disputes in family law.
• Discover strategies to maintain business continuity and safeguard future earnings.
• Find out how legal agreements can provide long-term security.
• Get practical advice on handling business operations post-separation.

Separating from a partner is never easy, but when a business is involved, the stakes are even higher. Beyond the emotional toll, there are significant financial and operational challenges to address. 

How will business assets be divided? 

Will both of us continue to be involved in the business? 

What steps can I take to ensure the continuity of operations?

These concerns are valid, and without proper planning, a separation could severely impact your business’s stability and profitability. 

Fortunately, there are measures you can take to protect your business, reduce conflict, and ensure a smooth transition. 

This article will guide you through key considerations, from securing business assets and handling valuations to structuring agreements that safeguard your future. By understanding your legal and financial options, you can make informed decisions and keep your business on solid ground.

Safeguarding Business Assets During Separation

When a separation occurs, one of the most pressing concerns for business owners is asset protection. Taking proactive steps can help ensure that business operations continue smoothly and that assets remain secure.

To minimise disruption and maintain stability, we recommend considering these key steps:

• Maintain Operational Control: If your former partner isn’t involved in daily business operations, ensure they have visibility but are not responsible for making routine decisions. This prevents unnecessary disruptions.
• Restrict Access: Update passwords and limit access to critical business systems and financial accounts, granting only what is necessary.
• Reassign Roles and Responsibilities: If your former partner played a significant role in the business, redistribute their duties among existing staff or consider outsourcing key functions.
• Safeguard Business Assets: Put measures in place to prevent unilateral sales of any company assets. This might include legal requirements for mutual consent for asset transfers.
• Legal Considerations for Employees: If your former partner is an employee, seek advice early from your employment lawyers to ensure compliance with legal obligations.
• Secure Business Essentials: Retrieve company property such as keys, laptops, and access cards from your former partner to prevent any unauthorised use.
• Protect Business Documents: Ensure that all business records, contracts, and sensitive documents are properly secured to prevent unauthorised access or misuse. 
• Review Existing Contracts: Assess business agreements to identify any financial or operational risks tied to the separation. A legal expert can help prevent unintended liabilities and ensure compliance. 

Handling Business Valuations and Ownership Disputes in Family Law 

Valuing a business during separation can be complex, and disagreements over its worth often arise. Understanding the process can help prevent disputes and facilitate a fair resolution.

Determining Business Valuation in Family Law 

The two most common arrangements for determining business valuation during a separation are:  

• Mutual Agreement on Value: Where both parties have a reasonable understanding of the business’s value and agree on a figure without requiring a formal valuation.
• Independent Valuation: Where an agreement cannot be reached, a valuer, who is often a forensic accountant, will generally conduct an independent valuation. In most cases, both parties jointly appoint the valuer to ensure fairness.

When using an independent valuation, there are different methods which can be followed. A key part of the valuer's job is to determine which method is most appropriate.  Some of the methods they might use include:

• Net Asset Valuation: Where they assess the value of business assets minus liabilities.
• Future Maintainable Earnings: Where they determine the value based on projected profits, often using industry multiples.
• Market Comparison: Where they compare the business to similar businesses that have been sold within the industry.

To ensure fairness and avoid potential conflicts, both parties should have access to all information provided to the valuer.

The Application of Business Valuations in the Separation Process

Once the valuation is finalised, the business value is included in the overall property settlement.  A process is then followed to determine how the assets should be divided between the parties.  

This process involves consideration of: 

1. Total assets and debts: The total asset and liability pool available for division. A simple example of this is, a business has a net valuation of $400k and the owners’ house is worth $600k with a $200k mortgage. The total asset pool available for division would be $800k.
2. Does there need to be a change in property ownership: This involves considering whether it is just and equitable to alter the property interests of the parties or whether each person should keep what they currently own and there is no need to change ownership of any asset. 

When changing the property interests of either person, the court will consider:

1. Contributions of each person: The contributions made by each person prior to entering the relationship, during the relationship and since separation (financial or otherwise). For example, if one partner owned the business at the start of the relationship, this would be considered.  Similarly, if during the relationship one party invested $100k to start the business while the other managed daily operations, both contributions would be considered. 
2. Future financial needs: The future financial needs of both parties. For instance, if one person cannot earn as much as the other and has primary care of the children, they may receive a larger share of assets. 
3. Ensuring a fair outcome: Whether the proposed division achieves a just and equitable result. For example, if one person receives the business, the other may receive additional assets to balance the settlement. 

If a dispute arises regarding business ownership, mediation can often help reach an amicable resolution. Court proceedings should be a last resort, as they can be costly and time-consuming, potentially disrupting business operations further. It is always advisable to engage professionals who specialise in family law to guide the process efficiently.

Protecting Future Earnings and Maintaining Business Continuity

Ensuring your business remains stable and profitable after separation requires careful planning and the right legal structures.

To minimise disruption and protect your business, consider the following strategies: 

• Binding Financial Agreement (BFA): A BFA can be prepared before or during the relationship and outline how business assets will be divided upon separation. If this can be achieved, then it reduces uncertainty in the event of a separation.
• Establish a Shareholders’ or Partnership Agreement: If the business has multiple owners, formal agreements can outline roles, decision-making processes, and other issues related to the operations of a business.
• Keep Personal and Business Assets Separate: Avoid mixing personal and business finances to facilitate a cleaner division in case of separation.
• Avoid Joint Business Operations Post-Separation: While it may seem feasible to continue co-running the business, it rarely works in practice. Conflicts can arise, making day-to-day management difficult and increasing legal risks.
• Formalise Agreements in Writing: If an agreement is reached in regard to a property settlement, particularly involving a business, be sure to document the agreement formally through a Binding Financial Agreement or a Consent Order to prevent future disputes.
• Seek Professional Advice: Work with accountants and legal experts to structure agreements that align with your business’s needs and regulatory requirements.

Additionally, consider implementing long-term financial planning strategies post-separation. Consulting with a financial planner can help you establish a sustainable business and personal financial future, ensuring that your earnings remain protected over time.

Conclusion

Navigating a separation while running a business is undoubtedly challenging, but with careful planning, you can protect your business, secure your financial future, and minimise disruptions. Taking proactive steps—such as safeguarding assets, obtaining fair valuations, and structuring legal agreements—can make a significant difference in ensuring a smooth transition.

If you find yourself facing separation, it is crucial to seek professional advice early. Whether through legal counsel, financial advisors, or business consultants, expert guidance can help you avoid costly mistakes and set the foundation for future success. By being informed and prepared, you can protect your business interests and move forward with confidence.

Above all, maintaining a forward-thinking mindset and prioritising clear communication with all involved parties will help in fostering a stable business environment post-separation. Remember that while separation marks an ending, it also presents an opportunity for fresh beginnings and long-term business success.

Find out more about navigating your property settlement with confidence. Download our Property Settlement Guide for expert insights and practical advice from our specialist family law team at Best Wilson Buckley Family Law.