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

Velocity Legal

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Key Insights

A business can be valuable without being easy to divide. In family law matters, a business may form part of the property pool even if only one party operates it. But value on paper does not always translate into available cash. A settlement that ignores working capital, tax liabilities or the business’s ability to fund payments can create pressure on the business itself. Structured or staggered settlements may be needed where liquidity is limited.
Valuation is often a major battleground. Business valuations can vary depending on timing, assumptions, maintainable earnings and market conditions. A single joint expert is commonly used, but that does not mean the valuation exercise is simple. Business owners and advisers should be prepared to explain unusual trading periods, one-off expenses, COVID-19 impacts, market volatility or other factors that may distort the business’s true value.
Tax and structure should be considered before settlement terms are agreed. Family businesses often operate through companies, trusts or broader family group structures. Retained profits, unpaid present entitlements, Division 7A issues and potential capital gains tax can all affect the real cost of a proposed settlement. Accountants and tax advisers should be involved early so the parties understand what the settlement actually means after tax, cash flow and control issues are taken into account.

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Separation is complicated enough without a business sitting in the middle of the property pool.

For business owners, a relationship breakdown can raise issues that go well beyond dividing personal assets. The value of the business, access to cash flow, control of the company, trust structures, tax consequences and future income can all become part of the family law settlement.

In this episode of Explain That by Velocity Legal, Andrew Henshaw is joined by Shannon Hilton to discuss how family law intersects with business ownership, and what business owners and their advisers should understand when separation occurs.

The discussion covers:

how a privately owned business may be treated in a family law property settlement;
why business valuation is often one of the first major issues;
the role of single joint experts in valuing a business;
how market conditions, COVID-19 impacts or business volatility can affect valuation;
why a valuable business may not have enough available cash to fund a settlement immediately;
how staggered payments or structured settlements may help preserve business operations;
when separated spouses may continue owning or operating a business together;
why financial agreements need to deal clearly with control, exit rights and trigger events;
how family trusts, companies, retained profits and UPEs can complicate the property pool;
why tax issues, including CGT and Division 7A, should be considered before settlement terms are finalised; and
why accountants, financial advisers and lawyers should be involved early.

A practical discussion for business owners, directors, accountants, financial advisers and separated parties dealing with a family law property settlement involving a private business, trust, company or family group structure.

For advice on family law property settlements involving business interests, trusts, company structures or complex asset pools, contact Velocity Legal’s Family Law team.

This podcast in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this podcast.

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