Avoiding a Messy Divorce: Family Law Tips for Business Owners and Their Advisors

‍What Business Owners and Advisers Need to Know

When a relationship breaks down, the financial consequences can be complicated enough. But when a privately owned business is involved, the stakes rise significantly. Suddenly, business value, control, and future income all become part of the equation.

In the latest episode of Explain That, Shannon Hilton joins Andrew Henshaw to discuss how family law intersects with business ownership and what both business owners and their advisers need to understand when separation occurs.

Valuing the Business

One of the first challenges is determining how the business will be treated within the property pool. Whether one party keeps the business, it is sold, or the parties continue running it together, valuation is critical.

In family law, valuations are typically conducted by a single joint expert, appointed to avoid conflicting reports. However, Shannon notes that valuation outcomes can vary, especially when external factors, such as COVID-19 or market volatility affect financial performance.

Cash Flow and Settlements

Even when a business has a clear value, accessing that value can be complex. Businesses often hold significant worth on paper but limited liquidity. Shannon explains that parties may agree on staggered payments or structured settlements to prevent disrupting business operations. This approach can help maintain cash flow while achieving fair division of assets.

When Former Spouses Stay in Business Together

While uncommon, some separated couples continue to operate a business jointly. Courts generally prefer a clean financial break, but financial agreements can allow continued co-ownership if carefully structured. These agreements should clearly outline control, exit rights and trigger events to avoid future disputes.

Trusts, Division 7A and Tax Considerations

Many small businesses operate through family trusts or companies, creating additional layers of complexity. Shannon explains that unpaid present entitlements (UPEs) and retained profits may be included in the property pool if the party involved has effective access to them.

Tax implications are another key consideration. Engaging with accountants early in the process is critical to ensure hidden liabilities, such as capital gains tax or Division 7A consequences, are identified and managed before finalising settlement terms.

The Key Takeaway

For business owners, separation can impact both family wealth and business continuity. The key is preparation, understanding how family law treats business structures and working closely with accountants, financial advisers and lawyers early in the process.

As Shannon highlights, a proactive and informed approach helps avoid a messy divorce and keeps the business part of the solution, not the problem.

🎧 Listen to the full episode below:
Avoiding a Messy Divorce: Family Law Tips for Business Owners and Their Advisors