Separation can have a disastrous impact on your business. Many of the impacts can be avoided if the separated couple receives proper guidance at the outset from trusted advisors.
This post provides some practical tips on the steps couples should take to keep their business afloat through a separation.
We’ve separated, now what do we do?
At the outset, our biggest tip is to try your absolute best to reach a property settlement agreement with your former partner, formalise the agreement in Consent Orders, and do so as soon as you can.
A property settlement is the formal division of assets, liabilities and superannuation (the asset pool) of married or de facto couples following a separation.
Interests in a business, company, trust or partnership will usually be included in the asset pool.
So how do we go about reaching a property settlement agreement?
While it does ultimately depend on the unique facts of your matter, the following steps should usually be taken when trying to reach a property settlement agreement:
Contact Trusted Advisors
Often the first port of call will be the accountant and other trusted advisors for the business.
These advisors will likely have a wealth of experience in assisting other separating couples and their advice and assistance will be crucial to ensuring the business survives the separation. They will not, however, be able to give family law legal advice.
You should therefore seek independent legal advice from an experienced family lawyer at the same time as consulting with your other trusted advisors.
In family law matters one lawyer is not permitted to act for the separated couple, so it is usual practice for you both to engage a lawyer of your own.
We would always recommend that you ask your trusted advisors, family and friends for recommendations about family lawyers. It can be helpful if the family lawyer has a pre-existing relationship with your advisors, as it can make the matter more seamless.
Start the Property Settlement Matter
After receiving independent legal advice, you should then as soon as possible take further steps so that you can negotiate a property settlement agreement.
These steps will include:
Agree to Interim Arrangements
In our experience, the time between separation and resolving the matter can be the most crucial to saving or destroying a business. Why? Because even the most amicable separations can take a few months to resolve and more complex or disputed separations can take anywhere from around 6 months to a number of years.
After separation, other issues can arise if someone acts recklessly or divisively, such as frivolously using business funds or resources; doing business in a reckless or indifferent manner; allowing the business to deteriorate; or starting a phoenix business to attempt to divert assets.
It is therefore crucial that you, as best as possible, reach an agreement about interim business arrangements, such as:
– How the business will continue to be operated;
– What your role within the business will be;
– How income should be divided; and
– How expenses will be paid.
Disclosure of Documents
Another step is the disclosure of documents. After separation, there is a duty to provide to each other all information and documentation relevant to an issue in the family law matter. This is known as the ‘Duty of Disclosure’.
So how does this work? You will each be given a list of documents from your respective lawyer that you must collect and provide to your lawyer. The lawyers will then exchange these documents.
It will depend on your financial circumstances as to what documents you must provide. Depending on the type of business, documents may include:
– Tax returns;
– Financial statements;
– Bank, Loan and Credit Card Account Statements;
– Trust Deeds;
– Business Activity Statements; and
– Shareholder or Partnership Agreements.
The disclosure step can often be very time-consuming. In some matters, disclosure is best handled by the business’ accountant or other advisor. This is because they maintain the business records and usually store electronic copies of all relevant documents.
Value the Business
After disclosure has been exchanged, values for all items in the asset pool will need to be determined.
The majority of assets can be valued during the process of disclosure. However, some items such as real estate or interests in a business may require valuation by an expert valuer. This usually occurs where parties cannot agree on a value or are unable to determine a value based on the disclosure.
Ordinarily, parties would agree to jointly appoint an expert valuer to conduct a valuation. The lawyers for the parties would prepare and send a joint letter to the expert. The expert would then outline all information and documents they need from the parties to complete the valuation, as well as the cost. It would depend on the size and complexity of the business as to the cost of the valuation.
The characteristics of all businesses vary. As such, there is not one set method that is used to value a business. Instead there are a number of methods open to valuers. They will choose the one that best suits the business.
Reach A Property Settlement Agreement
Once valuations are completed, they can be used to negotiate a property settlement agreement.
There are various ways people can negotiate an agreement. Some people will reach an agreement between themselves and simply have their lawyers draft the appropriate legal documents. See our previous post for a discussion on Consent Orders. Others might agree on some issues but require help to reach a final agreement. This will usually be either through negotiation or participating in a mediation.
If an agreement cannot be reached and a party is forced to take the property settlement matter to Court, the business valuation may also be used by the Court to assist in deciding the outcome.
To ensure that your business does not suffer following a separation, you should try your absolute best to reach and formalise a property settlement agreement in Consent Orders; and to do so as soon as possible. It is essential to get the proper guidance at the outset from trusted advisors.
Would you like further information?
The information contained on this site is for general guidance only. No person should act or refrain from acting on the basis of such information. Appropriate professional advice should be sought based on your particular circumstances.