Separating when you own a business: what happens next?

For many couples, a family business is one of the most significant assets in the relationship. When a relationship breaks down, questions often arise about whether the business must be sold, whether one party can keep operating it, and how its value will be treated in a property settlement.

The starting point in family law property proceedings is that a business interest, regardless of how it is structured or operated, is generally considered part of the property pool available for division between the parties.

Is the business included in the property settlement?

Yes. A business may be treated as property even if it is not owned directly by either party. The Court may consider interests held through:

• a company;
• a partnership;
• a trust;
• a sole trader structure; or
• other business entities.

The Court will look beyond the formal ownership structure and consider the actual financial interests and control each party has in the business.

How is a business valued?

A business valuation is often required where the parties cannot agree on its value.

A business valuation may consider factors including:

• the business assets and liabilities;
• profitability and future earning capacity;
• financial records;
• goodwill;
• customer relationships;
• intellectual property;
• equipment and stock; and
• the involvement and contribution of each party.

A specialist business valuer may be engaged to prepare an independent valuation. The valuation date may also be important, particularly where the business has increased or decreased in value after separation.

What about goodwill?

Goodwill refers to the value of the business beyond its physical assets. It may include the reputation of the business, customer relationships, location, trading history and the likelihood of future income.

Whether goodwill has a value depends on the circumstances of the particular business. For example, a business that relies heavily on the personal skills and reputation of one party may have limited transferable goodwill, whereas an established business with systems, employees and a strong customer base may have significant goodwill value.

Can one party keep running the business after separation?

In many cases, the business continues operating after separation while the parties negotiate or resolve their property settlement.

Possible outcomes include:

• one party retaining the business and buying out the other party's interest;
• the parties continuing to operate the business together (although this is often difficult after separation);
• selling the business and dividing the proceeds; or
• transferring ownership interests as part of a broader settlement.

The most appropriate outcome will depend on factors such as the relationship between the parties, the viability of the business, each party's financial circumstances and their ability to continue operating the business.

Can the Court order the sale of a business?

While the Court has the power to make orders dealing with business interests, the sale of a business is not usually the first option where the business provides an income for one or both parties.

The Court will consider whether a sale is necessary to achieve a fair outcome or whether other options are available, such as transferring the business to one party and adjusting the overall property division.

This article is general information only and does not constitute legal advice. Every matter is different — speak with one of our family lawyers about your specific circumstances.

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