Separation and family business

Sad but true... 1 in 3 Australian marriages will end in divorce. Therefore, if you are a married business owner, this roughly equates to 1 in 3 family businesses breaking down or experiencing a shareholder dispute as a result of this separation. 

The very nature of divorce is based on the fact that you and your partner can no longer be together. So if you and your partner are having irreconcilable differences, then do you really think you can continue to run a business together? If you do decide to continue the business, minimise the disruption by implementing formal arrangements as to the management and running of the business. This agreement needs to include how the business will be run, how profits will be divided and who has power to do what. It should also provide for an exit strategy. For example: What happens if one of you wants out of the business or get's married again? Who inherits the particular portion of the business in the case of death? Make sure all of this information is documented and reviewed on a regular basis. Don't forget to update your will as well to ensure that it reflects your intended beneficiary.

The structure of your business is extremely significant in the case of separation. Certain business structures such as family trusts, self-managed super funds and private companies tend to be more complicated for the separation process.

If you do decide to close the business, usually includes selling off all assets and separating them between the parties. This is known as the ‘clean break principle’ and aims to give the parties a fresh, new start with no remaining connection to their former spouse.

However, in these cases, often the family business is undervalued and sold off for an inadequate amount. In order to ensure that your family business is adequately valued, you may need to hire a forensic accountant to consider the business balance sheet and further documentation to come up with an appropriate valuation. Sometimes, couples are able to negotiate and agree on the value of the business, allowing one party to buy out the other.

In some cases, the business is of far greater value if it continues to operate as per usual. Therefore, it is best to consult with your financial planner and accountant to see whether your business will retain higher value if it continues to operate, or it is sold off.   If you do decide to keep the business, you need to keep a few things in mind. Firstly, as expected with any business transition, employees may be concerned about job security and may change their behaviour. Staff may be inclined to take sides in the business and may even be asked by one of the parties to lie to the other about the business. Second, you need to ensure that you and your former partner can work together. After some relationship breakdowns, the level of conflict between the parties can adversely affect the everyday running of the family business.

Divorce is difficult at the best of times but it doesn't have to mean the end for your business. 


Katherine Hawes

Director of Education and Training at Digital Age Lawyers (formerly New Age Legal Solutions)

I am the founder of New Age Legal Solutions and Aquarius Education. This is a different type of law firm as we believe everyone should have access to quality legal services with no hidden costs or expensive 'charging by the minute' for a reassuring chat. Small Business Owner? Find out more about our Small Business Packages to gain access to legal expertise on a routine basis for a fixed affordable rate.


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