How to divide a business in a divorce

16 Oct How to divide a business in a divorce

Article summary: 

Dividing business interests in a divorce or separation is rarely straightforward, particularly for high-net-worth couples. This guide explains how the Family Court approaches business assets, the role of forensic accountants in valuations and the practical settlement options available.

In this article:

1. What is a business interest?
2. How the Family Court approaches business assets
3. Valuing business assets
4. Practical options for settlement
5. How Toomey Family Law can help

Separating is rarely simple. But when a business interest is involved, the stakes and complexity can rise significantly. For many high-net-worth couples, business interests are not only a financial asset. They’re also part of your livelihood, legacy and, in some cases, your family identity.

Dividing a business interest or asset that’s part of the property pool can also be challenging because valuing them can be difficult. Unlike dividing a house or bank accounts, businesses are dynamic. They can carry future income potential, staff obligations and long-term strategic value.

So how do you navigate business interests during a financial separation or divorce? Is there help available to value them, and how does this process work?

What is a ‘business interest’?

Business interests in family law can take many forms, including:

• Sole traders and family-owned businesses
• Partnerships
• Shares in private companies
• Directorships
• Shareholder rights
• Units or interests in a business held through a trust
• Family offices

In many high-net-worth cases, there are also layered or interlinked structures. For example, you might have a family trust that owns shares in a private company, with the company in turn owning real estate. These layers must be untangled and understood before a fair division can even be considered.

How the Family Court approaches business assets

Under the Family Law Act 1975, business assets and interests are treated in the same way as all other interests. That means that the same factors will be applied to determine whether or not it should be part of the property pool.

Typically, all individual and joint assets and liabilities accumulated throughout the relationship will be considered. The Court will then apply factors such as assets brought into the relationship, earnings, financial and non-financial contributions, superannuation, health, age, and future income-earning ability to determine how to split the property in a fair and equitable manner. It’s important to note that the Court always focuses on the ‘fair and equitable’ result – and this does not necessarily mean a 50/50 split of the property pool.

Valuing business assets

In order to achieve this fair result, the Court needs to first understand the value of the business interests. If the valuation isn’t simple or straightforward – and most of the time they won’t be when it comes to business assets – the Court will engage a forensic accountant to help the process along.

A forensic accountant is an expert in valuing complex properties, and they are often brought in to untangle these valuations. In this role, they are often appointed as a joint expert witness to provide an independent assessment to the Court. This allows for a more transparent and balanced division of property,

Forensic accountants use a variety of methods to value a business. These might include:

• Asset-based approach – valuing the tangible and intangible assets held by the business by conducting a thorough appraisal of physical assets.
• Earnings-based / income-based approach – assessing the business’s capacity to generate profit or income in the future. But by analysing maintainable earnings and applying a capitalisation rate.
• Market approach – comparing the business to similar businesses recently sold, including comparing the target business’s financial metrics to those of others.

Ethical considerations are hugely important as well. Forensic accountants will always maintain independence, confidentiality and professional conduct to maintain the integrity of their work. Through their expertise and analysis, forensic accountants can provide a reliable and unbiased assessment of a business’s value.

Practical options for settlement

Many people believe that it’s common for a business to be sold in the event of a divorce or separation. But when it comes to dividing up your business assets, there’s no one-size-fits-all approach. Instead, some common approaches for splitting a business interest might be:

• Buy-outs. This is where one party buys the other’s share, often through marital assets or financing.
• Share transfers. Using this method the ownership proportions can be adjusted without disrupting the business itself.
• Deferred settlements. This involves utilising staged payments to balance immediate cash flow requirements.
• Restructuring ownership. This preserves the business while balancing the settlement.
• Sale of part of the business. Where feasible, selling part of the business allows the release of capital while still allowing a party to maintain operational control.
• Sale of all of the business. In this situation, the Court has determined that there’s no other fair and equitable way to split the business as an ongoing concern and will order it to be sold. This is a rare and unusual solution.
• Creative solutions. Sometimes, more tailored and unique agreements can be entered into to preserve the business, keep it in operation and meet both parties’ financial needs.

The key is striking a balance between fairness to both parties and the ongoing viability of the business.

How Toomey Family Law can help

Dividing a business interest can be a challenge, but it’s important to get it right. And getting it right demands strategic foresight and collaboration with financial experts. At Toomey Family Law, we have extensive experience acting for high-net-worth individuals and complex business and investment structures.

We also have experience working with forensic accountants, tax specialists and financial advisers. Because of this we can make sure that every angle is considered so you can be confident that your financial future is protected and your disputes resolved as quickly and seamlessly as possible.

If you’re going through a separation or divorce, contact Toomey Family Law today. Our team has the expertise and experience to make the process as smooth as possible. Reach out today.