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Collaborative practiceDivorce and separation

Divorcing your business partner? Consider a collaborative divorce

By July 23, 2018October 26th, 2021No Comments

Is a collaborative divorce better for couples running ‘family businesses’?

Some research suggests yes. Lets take a look why:

Spouses who are business partners have to deal with 2 problems – splitting the business and splitting the family. They may also have complex financial circumstances, so the unravelling of interests is typically a time-consuming process.

Whether it’s a high net worth couple with an established business or entrepreneurs nurturing a fast-growing start-up or just mum and dad tradies, a divorce can potentially derail a business.  For example, the divorce may have led to the departure of a key individual, with the exit of that partner often having a real effect on operations. It can be difficult to continue to run the business due to stress and emotional trauma the owners may be experiencing, and then there’s the trickle-down negative effect on staff who might witness the fallout.

To some extent couples who are business partners can prepare themselves for an eventual marital breakdown with appropriate pre-nups and shareholder agreements which can deal with divorce (or death) of a spouse who is a business partner.

But if that wasn’t set up in advance, the next best thing you can do if you’re unravelling a family and a business is to explore alternative dispute resolution processes including collaboration.

When couples choose to avoid court and utilise alternative dispute resolution processes, the result can be a much shorter timeline and far lower fees than if the couple were to proceed through litigation. When running a business, time can be a critical factor. Recent Canadian research has actually compared collaboration, mediation, arbitration and litigation and found that collaboration was the most cost-effective, being approximately half the cost of litigation. This was found to even be true for high conflict disputes where collaboration costs were still half those of litigation.

Why is a collaborative divorce such a good choice?  Collaboration utilises Harvard’s “interest-based negotiation”, compared to the “positional bargaining” used in other processes. The result is not only often faster and cheaper than litigation—but it’s also far more private. Where court hearings are open to the public (something you may not necessarily want in business) collaborative evidence and agreements can be kept confidential.

Experiencing a breakdown in trust during a divorce is common, and this can cause a lot of tension when dividing a family-owned business.  For example, arguments about valuations can be managed with an agreed process for choosing a valuer, and limiting the scope of the valuation to the issues which have been identified as relevant. Both parties have a far greater interest in managing the evidence-gathering process to what they care about. When using traditional litigation models, couples are confronted with the Family Law Act, and what the Act deems relevant.

When the aim of the game is wrapping up your divorce as quickly as possible to allow your business to regain normal productivity levels and family life to stabilise, it makes sense to choose alternative dispute resolution processes such as collaboration.

Please also read our blogs: How a Binding Financial Agreement can protect your business and how your business partner’s divorce will affect your business.

Would you like to discuss whether a collaborative divorce may be suitable in your situation?  Please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Legal Services on (02) 6223 2400—your first conference is free with no obligation.

Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Legal Services.

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