Selling your business before (and during) divorce

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Timely timeframes

Before tackling the business aspects of this topic, it is appropriate to clarify applicable timeframes, and it’s important to be aware that whether the parties involved are married or de facto, both arrangements are treated equally under the law.

A financial settlement can occur at any time from the date of separation. In the case of a de facto couple, it must occur within 2 years of separation.

In the case of the separation of a married couple, financial settlement can also occur from the date of separation. There is no requirement for a separated married couple to seek divorce. However, should they divorce (which cannot occur until 1 year after separation), then once divorce is granted, financial settlement must occur within 1 year of the divorce date.

This is all-important, as it provides an overview of the timeframe expectation upon which the financial settlement will be based and either can or must occur.

Navigation to the financial settlement

A financial settlement can be organised and agreed to by the parties involved, or where no agreement can be reached, by taking the matter to Court to decide a fair and equitable outcome.

In either option, it’s necessary to start with a full disclosure of assets from both parties, including business assets. The possible scenarios for business ownership can vary from sole trader through to partnerships either with the spouse or de facto partner or with others, to large companies or trust arrangements. As such, the method of establishing a valuation of each person’s business interests will vary enormously but however achieved, such a valuation will be included in each party’s asset pool.

Selling the business to raise funds may not be necessary if financial settlement can be achieved from other financial resources. However, if both parties are involved as business owners, while technically possible to continue operations together, it may not be practically viable to work day-to-day with someone on the opposing side of divorce proceedings. Issues of staff morale and support may also come into play.

Remember that old saying: Loose lips sink ships

While a professional valuation may arrive at a specific figure or range, it does not guarantee that the business will achieve that price in the marketplace. If it’s known that the owners of a business are thrashing out a personal relationship breakdown and financial settlement, potential buyers may well be scared off completely or may want to drive a hard bargain on the sale price. Maintaining your own wise counsel with professional advice and keeping the lips zipped publicly will pay dividends.

Timing is everything

If selling a business is decided upon for whatever reason, then it is probably beneficial for all concerned if the sale can be conducted ahead of time in a controlled and prepared manner. A fire-sale scenario in the heat of divorce or separation tensions is not likely to provide a good outcome.

 Another major aspect of timing is that valuing an asset pool for settlement – including a business – is establishing the value at the time of the financial settlement, not at the time of separation or divorce. This allows the parties to have a degree of control over the timing of either a sale or a buyout of the other party’s interest ahead of time.

Don’t go it alone

It’s vital to have a clearly defined path when a business is part of a financial settlement. Lawyers experienced in family and business law with established connections to quality accounting services can assist greatly in paving the way.




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