Small businesses and family law disputes
The reality of family law disputes is that many parties have one or more small businesses that they were running during the relationship and intend to continue running after the relationship.
The two main issues that tend to arise in family law matters are:
- How much is the business worth and is it available to be split; and
- When parties have jointly been running the business and need to disentangle themselves.
Is the business available to split?
In Family Law matters, all assets and liabilities of the relationship are open to be included in an asset pool and to be split between the parties. The law refers to this as altering the interests of the parties in the property. This is the case for both married and de facto matters. Of course, there are arguments for why various assets and liabilities should not be included in the asset pool, but those are on a case by case basis.
A small business where either one or both parties are the only proprietors, even if the business is managed through a family trust, usually falls squarely and completely in the asset pool available to be split.
A small business managed as a partnership with other persons, or where it is set up as a proprietary limited company where shares of the business are owned by persons outside of the relationship, still usually falls within the asset pool but only to the value of the share of the party in the marriage or de facto relationship.
The business is often retained by one party of the relationship and added to their side of the asset pool, rather than necessarily having to be sold. This means it is important to have a value for the business as that value may impact on the split of the other assets where one party might need more cash assets to make up for not retaining the business.
How much is the business worth?
In a dispute, a small business can be and should be professionally valued by a joint sworn expert who undertakes business valuations for Family Law matters. At Ebejer & Associates, we can work with valuers to get an accurate valuation for negotiation purposes or to use in Court.
The reality of a small business is that parties often get stuck looking at only the assets held by the business or the cash in the accounts of the business, and forget that various liabilities (including tax) need to be taken into account. Parties often also have to come to terms with understanding that a small business value is intrinsically tied to one or both of the parties and that if the business was to be sold without those key persons then the business will be worth much less. These are examples of some of the considerations that a professional valuer will take into account, and the information that needs to be provided to the valuer to ensure an accurate value.
Parties can agree to ascribe a value to the business, and that can be nominal or nil.
Disentangling from the business
Often when small businesses are run by married or de facto parties both parties end up being directors of the business and where there is a family trust they are both beneficiaries.
Either one or both parties often use the business bank accounts for personal expenses.
There can also be tax issues with unpaid tax for either personal tax or business tax which need to be resolved before finalizing property matters.
At Ebejer & Associates we have experience in resolving the above issues for our clients and working with accountants to ensure that parties have undertaken the necessary steps to finalise their relationship and move forward with their new future.