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Small Business, Divorce and Family Law
Find out your rights on how the business is treated in a divorce?Speak to a family lawyer on how to keep your business?Or how it gets split? And how its valued in family law?
Contact us today, our family lawyers can explain.
Have Your Own Business, Going Through a Divorce or Separation?
Going Through A Divorce – How Do I Protect The Business!
Going through a divorce or separation is difficult, and this difficulty is often compounded by the complexities of negotiating and finalizing a property settlement.
Every relationship is different, and in the same manner every property settlement will be different, which is why it is so important to receive specific advice related to your personal circumstances.
One factor that may change the course of your property settlement is the ownership of a business.
Many business owners have the same concern – what will happen to my business after divorce or separation?
Contact us to arrange to speak to a family lawyer.
What People Say About Us,
Cominos Family Lawyers.
"Cominos team were nothing short of amazing and professional."
“Pamela and her team followed through on everything they promised in a prompt and professional manner, I was feeling quite overwhelmed after spending over $50K with another firm. I would highly recommend Cominos Family Lawyers.”
“Cominos provided great and timely advice and assistance during my matter. Team members displayed professionalism, courtesy and promptness during a stressful time.”
Family Law and the Business Advice?
Frequently Asked Questions (FAQs).
Is My Business Included In The Settlement?
When going through a property settlement, one of the most important steps is to identify the asset pool. This step applies to all property matters regardless of whether a business is involved, however if you have a business there are a few extra things you should think about.
The asset pool consists of all assets, liabilities and superannuation owned jointly or individually both overseas and within Australia. The net asset pool is calculated by determining the assets, deducting the liabilities, and adding the superannuation.
If you own a business in your sole name, own a share with someone else, or there is a joint business, it will be included in the asset pool.
A business is considered property by the Family Court and will be included in a balance sheet in the same way as all other assets including the matrimonial home or a car.
Why Do I Need To Get My Business Valued?
When negotiating a property settlement, it is important to accurately know the value of the asset pool. This means knowing the value of your business.
However, many business owners do not know the value of their business and can greatly overestimate or underestimate the value of a business, particularly when they own a small to medium sized business.
The difficulty of falling into either of these groups, is that you are trying to separate a net asset pool which is not a true reflection of the value. As a result, it is important during a property settlement to obtain a business valuation.
By knowing the value of your business from the beginning, it removes the guess work and allows you to stay informed and in control of your property settlement.
How Do Valuations Work?
The most accurate way of determining the value of a business is to obtain a business valuation. A valuation can be obtained by one party, or more frequently a joint valuation will be used.
A joint valuation involves the parties agreeing to use and instruct a single independent expert who will review the business and prepare a valuation.
There are many ways a business can be valued, and the method of valuation will depend upon the type of business.
The expert will determine which method of valuation is most applicable based on the business, and below is a brief description of the three main methods of valuation:
1. Net asset approach
The net asset approach is a less complex method of business valuations. It involves calculating the assets owned by a business, and then deducting the liabilities to determine the net asset value.
This method of valuation is suitable when the value of a business is mostly determined by the value of the assets it owns.
These businesses typically do not make a profit and have no goodwill, meaning the business mostly exists to pay a salary for the owner and has minimal value to a potential purchaser.
2. Multiplier approach
The next method is the multiplier approach, also known as the Capitalized Earnings method of business valuations. A valuation obtained using this method attributes the value of a business to its future earnings and is calculated using a multiplier based upon the sale of comparable businesses.
Therefore, the value of a business using this approach will be determined by the expected future earnings and relies upon an assumption that the business’ profits will continue.
3. Value to owner approach
The final method of business valuation is the value to owner approach. As the name suggests, this method of business valuation considers the value which is received by the owner and includes benefits not necessarily connected with a monetary value such as flexibility.
Therefore, the value of a business using this approach considers the risk to the owner if the business was sold.
How Is A Business Dealt With In A Property Settlement?
As previously mentioned, a business is included in the balance sheet for the purpose of calculating the value of a net asset pool. When determining how the asset pool is divided between the parties, there are core considerations in calculating each person’s entitlement.
These considerations form part of the 4-step process adopted by the Court when determining property settlements. As a quick overview, the 4-step process consists of the following:
1. What is the net asset pool?
2. What are the contributions of each party? Contributions at the beginning of the relationship, during the relationship and post-separation in a financial and non-financial capacity.
3. What are the future needs of each party? (e.g., income, care of children, health)
4. Is the outcome just and equitable.
This process is used to determine each parties’ entitlement to the asset pool and which assets or liabilities each party will retain. Through this process there are considerations that influence which party will retain the business.
For example, if one party has established and run the business throughout the relationship and it is their sole form of income and/or employment, it is likely they will be afforded the opportunity to keep the business, or the business will form part of their share to the asset pool.
Ultimately, although each property settlement is unique, there are two main ways a business is dealt with. The first option is for one party to keep the business and depending upon the circumstances this may involve a buyout.
If neither party is interested in keeping the business, the business will be sold, and the proceeds distributed between the parties.
What Should You Do If You Own A Business And Are Going Through A Separation?
1. Surround yourself with professionals who can advise you on your family law entitlements as well as all other aspects about business. Having a network of experienced professionals is an investment in yourself and allows you to know where you stand and regain control of your separation.
2. Be full and frank with your financial disclosure. As family lawyers we often refer to the phrase ‘full and frank’, but essentially it is about being upfront with your financial circumstances and providing the documents which detail your financial circumstances.
3. Get your business valued and know what you are working with from the beginning.
Tell Me About Cominos Family Lawyers?
Cominos Family Lawyers is a leading family law practice that was established in 2010. Since this time, we have focused exclusively on family law matters.
We have over this time specialised in helping owners of small to medium business to navigate the divorce and separation process.
Our team are experienced in:
1. Strategies for protecting ownership of your business.
2. The different types of business valuations applicable under family law.
3. Identifying what are and aren’t business assets and liabilities.
4. Tax considerations re the business as part of the financial settlement.