Rearranging your finances after a split is often a complicated matter and more so is there is a business involved. Small business, start-up, local business, multinational company–whether the business was run jointly or one person took a complete back seat, or mutual assets were used to conduct the business, the process of dividing business assets in divorce can be complex. Given how important it is to properly value a business interest, let’s take a brief look at what’s good to know about dividing business assets in divorce.
Generally speaking, it’s unwise to try to continue to operate the business together during a divorce—collaboration on business decisions becomes harder, customers and clients can feel insecure—so one party is usually bought out. This means the business asset is put on the balance sheet amongst the other assets and liabilities of the relationship. The value of a business is included in the property settlement like any other asset. It’s the tricky part of the valuation of a business that often causes issues. If the business is only a minimal asset, usually the parties can agree the value and move forward. But when it’s a significant asset, or when there are significant financial benefits arising from the business, it can be a major source of dispute.
How is a business asset valued?
A business asset’s value may have many components to factor in, including both tangibles and intangibles: stock, plant and equipment, goodwill, IP, work in progress, cash in bank accounts, debtors and creditors.
The business, like all other assets, are generally valued at the current date, rather than at the date of separation. As such, both parties are incentivised to protecting the business during settlement negotiations.
The business may in fact have minimal value but still produce an income stream, in which case the income may be taken into account in a property settlement as a financial resource.
If litigating parties can’t reach agreement on the business asset value, the Family Court may appoint an independent valuer. Typically a valuer doesn’t value the business as if it were to be sold, but the monetary value to the owners and the profits and benefits they would expect from maintaining the business.
Who does the valuing?
It’s usually appropriate to hire a certified business valuer to value the business. This would typically involve the valuer combing through the business finances, assets, liabilities and other factors to arrive at a value. It’s best to agree on a joint independent valuation (your lawyer can refer you to one).
What should you do with the asset on divorce?
Commonly, one party wishes to buy the other party out of the business asset. To work out what the best option is for handling a business asset during your divorce, give us a call here at Alliance Family Law and let us model a variety of scenarios for you to find the most satisfactory potential outcome in your matter.
There are many reasons to seek prompt legal advice when dividing a business as part of a divorce, or even when you are first starting to anticipate divorce may be on the cards. To avoid disruption to your business, cashflow problems, loss of value, loss of assets, forced selling off, losing control, or even insolvency, it makes a lot of sense to take the route of alternate dispute resolution to work out your property settlement. For help with a property settlement that involves dividing business assets in divorce, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.
Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.
You may also like to read our blog on what you can do pre-emptively to divorce-proof a business.
