Australia: The Modern Family, relationship breakdowns and the family business

According to the Australian Bureau of Statistics, the number of marriages in the nation increased from 2013 to 2014. Couples are waiting longer to go into their first marriage and while the number of divorces has dropped, the number of couples remarrying has increased.

In 2014, the average length of a marriage was 12 years. The median age of a male divorcee was 45.2 years old while that of a female divorcee was 42.5 years old.

A good example of "The Modern Family" is the aptly named popular American television series, 'Modern Family'.

In the show, Jay remarries a much younger woman, Gloria. He already has two children of his former marriage and Gloria has a son. One of Jay's adult children, Mitchell is in a same sex relationship with his partner Cameron and they adopt a Vietnamese baby. So here we have second marriages and blended families.

Thrown into this mix, are family businesses. In Australia, 70% of all businesses are family businesses. A survey in 2010 by Family Business Australia found that the average turnover for a family business is $12million per year. Of this sector, 81% of owners plan to retire in the next 10 years.

  1. Untangling the financial relationship

As a family lawyer, our role quite often involves untangling a couple's financial relationship after separation. Frequently, this means untangling the rest of the family too and it can be tricky where there is a family business involved.

The Family Law Courts generally follow a four step process when determining a property dispute:

  1. This involves identifying the assets, liabilities and financial resources of the marriage, whether it is in one party's name or in joint names or with any other third party.
  2. The second part of the process involves weighing up the contributions of each party in dividing the pool of net property identified above. Contributions can be made either directly or indirectly through financial or non-financial contributions to the "acquisition, maintenance and conservation" of the property.
  3. This step involves making any adjustments to the division of net property, if necessary, to take into account any relevant "future factors" such as age, health, difference in income earning capacity or care of any dependents.
  4. The final step involves determining whether it is "just and equitable" in the circumstances of this relationship to make an order for property adjustment.

For family law cases in Court, which currently run for three to four years on average, the majority of time will be spent trying to identify and value the net pool of assets. Valuations are often expensive and time consuming, particularly where the family business accounts are closely examined by a forensic accountant.

If there are a number of entities, then identification of each entity and the interest held by either or both of the parties to the relationship or marriage is looked at, as well as whether he or she is a shareholder, or if there is a beneficial interest. If so, should the interest be treated as an "asset" or as a "financial resource"?

In terms of contributions to a family business, one party may have owned an interest at the start of the relationship, and the other party may have worked in the business during the relationship, or indirectly contributed by undertaking the lion's share of the parenting and homemaking whilst the first party devoted their time to growing the business.

The types of "future factors" commonly taken into account are age, health, difference in income earning capacities and where one party has access to significant financial resources such as beneficial interests flowing from a family business or a family trust.

  1. Property settlements – how the courts are dealing with family businesses

The Family Law Courts in Australia have very wide powers, including powers to make orders against third parties and to join third parties in Court proceedings, for example grandparents who have made loans to one or both parties, or to join companies where an order is sought which would affect the rights of the third parties.

In the case of Wightman (2015) there were a number of companies operated by the husband during the marriage and of which the wife was a director. After separation the husband used his power of attorney to remove the wife from the companies and sold their interests in one of these companies, without the wife's consent or knowledge.

Unsurprisingly this led to urgent injunctions sought by the wife against the husband and the companies from dealing with their respective company assets in such a way as to reduce the value of assets, "except in the ordinary court of business or with the wife's written consent which shall not be unreasonably withheld."

Further, the husband in that case is also restrained from exercising his capacity as the appointor of any of the Trusts, to alter the Trust Deed or to pass any resolution to deal with the assets of the Trust, other than distributions of net income in the usual manner and after notice has been provided to the wife.

  1. Can a binding financial agreement help?

Yes most definitely, if prepared correctly. A binding financial agreement (BFA) or pre-nup ousts the Courts' power to otherwise make Orders in relation to property arising from the relationship.

There are technical requirements which must be complied with in order for a financial agreement to be legally binding. But if drafted correctly, these agreements can be powerful tools in protecting assets such as interests in a family business.

BFAs allow parties, including third parties, to come to their own private agreement - not only in relation to property and maintenance, and also ancillary matters. These private agreements can be tailored to the particular circumstances of that family, including delayed settlements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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