Australia: What happens to your business when you get divorced?

Last Updated: 30 January 2017
Article by Nathan McEwan

Whether you are married or in a de facto relationship, divorcing or separating from your spouse is stressful and can have a substantial impact on your business. It creates challenges not only for the spouse(s) running the business, but also for any partners or other shareholders in the business, and for the continuity and value of the business.

Small to medium businesses are usually affected the most as a consequence of a separation.

Accurate record keeping makes financial disclosure easier

Each spouse has an ongoing obligation to give full and frank financial disclosure. This means that business records, financial statements, bank records, BAS and tax documentation is to be compiled and provided to each spouse. This could be required several times during a court process.

The disclosure task is often very time consuming and can best be handled by the business's accountant or bookkeeper.

All business interests, whether in a partnership, sole trader, company or trust structure, can be treated by the court as "property" as defined by the Family Law Act and must have a value attributed to them.

It is important to understand that the business structure and the control of the business entity will have significant influence on how the business is dealt with during a separation. So keep up-to-date and accurate records.

Sole trader businesses usually given a modest value

In the vast majority of circumstances, a sole trader like a tradesperson or professional consultant is a "personal exertion" style of business, with few employees, if any.

Most of the time the business will remain with the sole trader who has the skill and training, and a value needs to be attributed to the business.

Ordinarily the value of the business hinges almost entirely on the personal reputation of that individual. Usually a modest value would be applied to such a business interest as a "value to the owner".

The books and records of the business will need to be disclosed to the other spouse. The court will take the business into account as a future financial resource of the spouse retaining the use of that business.

If there are multiple employees, the value of business will be determined by the usual valuation processes.

How does the court treat partnership businesses?

Partnership businesses can be broken into two categories – spouses in partnership and partnerships with a third party or parties.

Spouses in partnership

This is also usually a "personal exertion" style of business. Usually one spouse will retain the business. A value will be determined for the business the same way as for a sole trader, ie value to the owner.

Similarly, if the business has employees and has been operating for a number of years, it will need to undergo the normal business valuation process.

Obviously, in a situation where both spouses have worked in the business and then go through a separation, that will have a significant impact on business continuity and will affect the staff. It would be rare for a business to continue to be operated by two spouses who have separated.

Partnership with a third party or parties

A separation will have an impact on the other business partner(s). Not only will there be a change of focus by the partner who has separated; there will also be the requirement to give disclosure, which is often not welcomed by the third party partner(s).

The court will take into account any partnership agreement with the third party partner(s) and will consider the effect of the separation on the partnership and the third party's rights.

It is highly recommended that all partners in a business enter into a partnership agreement prior to the separation. Such an agreement could stipulate the method to determine the value of the business and the actions to occur in the event of a separation – for example, trigger provisions to enliven a buy/sell arrangement between the partners. These clauses can work to preserve the business continuum, as well as maintain the value in the partnership.

Company held businesses – are there any third party shareholders?

If the business is owned by a company, and that company is a "family company", where the shares in the company are held by the spouses, then it will be considered essentially an alter ego of the spouses and dealt with as a quasi-partnership (see above).

If the business is owned by a company which has third party shareholders, because the business is an asset of that company, it is necessary to determine the value of the shares in the company.

In either scenario, the business will still need to be valued, and disclosure given, but the value of the shares will also depend on the balance sheet of the company. Often a common entry on the balance sheet is a director's loan account. Whether it is a credit or debit, that loan will also need to be considered in the valuation of the shares and the determination of repayment arrangements.

Who has control of the company?

The court will also have to consider the company structure to determine the control of the company, eg whether there is an equal or an unequal shareholding and the different share classes.

The control of the company is a key factor, eg one party may have a majority (simple) or a special majority, which may ultimately affect the manner in which the company is operated and valued.

If the separating spouse shareholder has a minority shareholding with a third party, then that minority shareholding will probably have a lesser value attributed to it for practical purposes, because the minority shareholder is unable to make determinations about the company. The opposite applies if the separating spouse has the majority shareholding and is therefore able to exert a majority influence and control the operations of the business.

A well-crafted shareholders agreement is advisable. This may include determining a value and specifying trigger events such as separation from a spouse, leading to the requirement for a buy/sell arrangement. The company constitution could also be important to consider.

If the separating spouses are directors or secretaries of a company, they must remember that they are still required to comply with the Corporations Act and their duties and obligations as an office holder, to act in the best interests of the company and the members as a whole, even though they are going through a separation.

Discretionary trusts and unit trusts

In a trust arrangement the first question is, who has control of trust? Much also depends on the type of trust.

In a discretionary trust (also often called a "family trust"), it is necessary to consider the trust deeds, the identity of the appointor of the trust and the history of use of the trust.

If the trust is a unit trust, it may be treated similarly to a company. It is the units in the trust which need to have a value attributed to them. It will also be necessary to consider whether those units can be transferred between the other unitholders. Much will depend on the content of the trust deed and the powers contained within that document, or any subsequent unitholders deed.

The trust deeds and registers are important in disclosure, along with the financial records.

Safeguard your business with proper legal planning

In all of the above scenarios, in most situations, one of the separating spouses will seek to retain the company and will therefore have a continuing financial resource at their disposal. The court will take this into account when considering the "future needs" of the parties before adjusting assets between them.

In some instances, the court may be able to order that shares are sold if, for example, there is an impasse over the business and there is a market for it to be sold.

The primary concerns for most SMEs when parties separate are the disruption to business continuity and the effect that such a separation may have on staff morale and the reputation of the business. Other concerns arise if one spouse acts recklessly or divisively, such as frivolously using company funds or resources, doing business in a reckless or indifferent manner, allowing the business to deteriorate or starting a phoenix business after separation.

Proper legal planning can be a valuable exercise to minimise or avoid such risks. Spending time planning appropriately when you are not on the verge of separation may provide a useful layer of asset protection for the future and may also insulate third party business participants from any woes in your personal life.

Nathan McEwan
Divorce and separation
Stacks Law Firm

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions