Separating from your spouse or partner can be a stressful enough experience. Separating when you own a business or work together can amplify these feelings. This is a particular consideration for small or medium sized businesses. If you are going through a separation and you run a business with your former partner, there are several things you need to consider:
a) Asset pool
Pursuant to the Family Law Act, all businesses, partnerships, companies, or trust structures can be treated as ‘property’. This means that your business will form part of the matrimonial 'asset pool'. The asset pool is the collection of assets accrued before, during and after your relationship, which will form the basis of your property settlement.
In order to properly determine the value of your business, it may be necessary to undertake a formal valuation. This is usually at the joint expense of you and your former partner. The valuation of your business will take into consideration various factors, including (but not limited to):
- The size of the business;
- The location of your business;
- The total amount of employees;
- Furniture and equipment; and
- Any debts or liabilities.
Once the business has been valued, you and your former partner will be able to work towards deciding what happens to the business.
b) Financial disclosure
A key principle in Family Law matters is that each party is legally required to provide “full and frank” financial disclosure. This means that you must disclose complete and truthful details of your past and present financial circumstances to the other party. (You can learn more about financial disclosure in this post by my colleague Cassandra Selvaggio.)
Your duty of disclosure extends to all information relating to your business. This includes, but is not limited to, business records, financial statements, bank records, trust deeds and tax returns. These types of documents will need to be compiled and disclosed to your former or partner.
Financial disclosure material may be required should the matter proceed to Court. It is therefore vital that you maintain accurate and detailed financial records relating to your business.
The best way to obtain these financial records is through working directly with the professional who assisted with setting up the structure of the business. This is usually your accountant, bookkeeper or business advisor.
c) What happens to the business?
This question often depends on the structure of the business. There are various types of business structures, including:
- Sole trader;
- Spouses in partnership;
- Partnership with a third party (or parties);
- Company held business; or
- Family Trust.
If you and your partner are business partners, and things are becoming too uncomfortable, you should consider the following options:
- Selling the business and dividing the proceeds.
- Buying out your partner for an agreed sum;
- Selling your share to your partner for an agreed sum.
It is rare that separating partners decide to continue operating their business as normal. This is a rare occurrence and would only be an appropriate consideration if the separation is completely amicable.
If you choose to sell the business, you should consult your accountant or business advisor about whether the business should be restructured in any way. The structure of the entity will dictate the manner in which the entity is to be transferred or sold (if you decide to do so).
If you agree for one partner to retain the control and use of the business, this will be considered as a ‘financial resource’ for that partner. Importantly, any decisions made regarding the business should be made together, or through your lawyers.
d) Working together
Consider the impact that your separation is having on your work life, and relationship with your colleagues. If the separation is having a detrimental impact towards your ability to work, you should consider exploring alternatives.
If you and your partner are in partnership with a third party (or parties), you should consider the potential impact your separation may have on the other partners or shareholders of the business.
e) Working for your partner
It may be necessary, for financial or other reasons, for you to continue to work together in your business for a time after you have separated. This can be stressful, and it’s important for you and your partner to decide on the responsibilities of each of you in running the business. For example, who is going to order stock, liaise with customers, do the BAS statements, the marketing, and so on.
It is important to ensure that you are able to maintain a business-like relationship. Consider seeking support outside of your workplace, from family, close friends and professionals such as a counsellor or psychologist. Furthermore, you should ensure your job title and scope of work is clearly defined to avoid disputes with your former partner.
You will both need to keep your personal differences separate from running the business, so that your staff, and your customers, don’t become embroiled in your relationship breakdown.
Unless you and your partner can remain on friendly terms, it’s best to get the future of the business sorted out sooner rather than later.
f) Get professional advice
Importantly, you should seek professional advice from your accountant, business advisor and lawyer before making any decision relating to your business after your separation.
The experienced family law team at Tonkin Legal has plenty of experience guiding people through the often painful process of separating from their partner. Give us a call on (03) 94359044 to discuss how we can help you.