Australia: Divorce and a common business

Last Updated: 6 February 2019
Article by Hayder Shkara

Divorce can be hard enough without it involving your business and livelihood. For many Australian couples, divorce and business mix, and this leads to big questions and big decisions about the business they run.

Lots of people run businesses, whether these are start-ups, small businesses, local business or multinational companies.

The entrepreneurial spirit is thriving, and a business is often part of a marriage if a couple founds or directs an enterprise together.

If two people in business together are in a relationship and then decide to separate or divorce, what implications does this have for the business they run?

The answer to this question is different for everyone: every divorce and business, just like every marriage and relationship, is different.

But there are some common points that a person tackling divorce and business with someone else who is about to become their ex-spouse needs to pay careful attention to.

Seek Legal Advice

Because every situation is different, it is hard to know the likely outcome or the best result for you and your business without seeking professional legal advice.

Contact a lawyer as early as possible so you can learn what to do and what to expect and obtain advice about approaching divorce and business before taking further action.

Property Settlement

A major complexity in a divorce is establishing financial independence as well as emotional independence of another person.

Separating the finances of a business, whether large or small, can be very tricky.

Some aspects may be jointly owned, others owned or in the name of only one spouse, and working out an equitable division of the business, or another solution, takes place in the divorce property settlement.

A property settlement is often necessary in the divorce process as two people begin their separate financial lives.

It involves working out the value of assets and liabilities jointly or solely owned by the parties, and also takes into account non-financial contributions made to the relationship, such as primary parenting and maintaining the home.

The property is then divided equitably to meet each party's entitlements.

Businesses are treated as property under family law, although divorce and business is not always so simple.

The value of a business is included in the property settlement just like any other asset, such as the family home.

What makes divorce and business more difficult, however, is that it can be incredibly hard to calculate the value of a business.

If the two parties cannot agree on the value of their business, then reaching a fair property settlement is even harder.

If a property settlement cannot be agreed upon, whether because of a disagreement on the business value or because the parties' expectations are not being met, the case will go to the family court.

Here, in order to meet the entitlements of both parties in the property settlement, the court may order the sale of the business.

This is not the only possible outcome.

For two spouses running a business together who then divorce, there are many possible solutions.

Ex-spouses may continue to manage their business together, one spouse may sell their share of the business while the other stays, they may rearrange business operations to facilitate a professional relationship, one spouse may choose to have a smaller role in the business, or it may be sold off completely.

Some people might find managing divorce and business easier than others.

There is no right answer and no easy prediction.

Business Valuation

To reach an agreement on the value of the business and therefore make the division of assets easier, one or both spouses, or the Family Court, may appoint an independent valuer.

The independent valuer has the responsibility to provide an accurate estimation of the business value, without any bias or partiality.

In court, they have the role of a single expert witness, someone who provides the court with more information about the case in question.

The estimated value that the independent valuer calculates is usually not the value of the business if it were to be sold but rather the business's monetary value to the owner and what sorts of benefits and profits they could expect to receive if they maintained the enterprise.

There are different ways to approach a business valuation depending on the size and type of business, but the valuer will likely take into account:

  • The stability of the earnings
  • Whether the business has stopped or is continuing operations
  • Estimations of future cash flow
  • Estimations of profits if the business were to be sold

An independent business valuation brings clarity to the property settlement proceedings and may be used in court to establish each party's entitlements for a fair division of assets.

The Family Farm

A farm is one type of business that brings further complications with it.

Divorcing and then working out what to do with the family farm can cause many problems, ranging from professional to financial to emotional.

Acquiring a farm may be a little different from acquiring another sort of business if the farm was inherited.

Because of this, the property may be in one party's name but not the other's, while other parts of the farm may be owned jointly or by the other party.

Another complication is that, for many people, running a farm results in being asset rich but income poor.

Therefore, the question of how to divide property is not an easy one.

The court will assess the contributions each party has made to the maintenance and management of the farm, just as they would assess the contributions made to any other type of house, and establish each spouse's entitlements in the property settlement.

In order to be fair and equitable and provide a spouse with their entitled financial settlement, the court has the authority to order the sale of the farm.

Case Studies

The issue of divorce and family businesses comes up quite often in cases heard by the Family Court.

The following cases are examples of how a property settlement can play out.

Calder & Calder (No. 2) [2014]

The case of Calder & Calder, heard in Melbourne in 2014, involved a property settlement at the end of a marriage that had lasted 33 years.

The matrimonial asset pool comprised major farming properties known as Property A and Property C, plant and equipment, crops, machinery and livestock owned by the Calder and Co Farming Partnership and a fund named the Calder Family Trust.

The couple's assets were worth over $13,000,000.

The wife sought a property settlement in which the Calder Family Trust and the assets owned by the farming partnership were divided equally.

She wanted to retain Property C, while the husband would retain Property A.

The husband had acquired the farm before the couple were married and made a significant initial contribution, however, the wife made significant contributions as a homemaker.

The court assessed the contributions each party had made as well as the value of the assets.

The final order was for a 55/45 division of property in favour of the husband, with an equal division of plant, livestock and equipment.

King & Hamidou [2016]

The parties Ms King and Mr Hamidou were married for 14 years and operated a number of businesses.

The most successful was an enterprise known as the D Business, which became the subject of the property settlement.

Both parties wanted to retain their interest in the D Business and be solely entitled to it, including related bank accounts.

In order to resolve the property settlement fairly, the court considered financial and non-financial contributions, both direct and indirect, made by each party.

The value of the business, as the asset both parties wished to retain ownership of, was very important.

Ms King engaged an independent valuer, known as Mr E, who valued the business at $3,800,00.

Mr Hamidou submitted his own value of the business, $4,200,00.

Ms King and Mr Hamidou had described the business as "the gold mine" and "the jewel in the crown."

Assessing the parties' post-separation contributions was important in this case.

The wife maintained responsibility for the business and had been operating it very successfully, returning the business to profitability since taking responsibility for its financial management.

The judge adjusted the asset pool to 52.5 per cent in favour of the wife and 47.5 per cent in favour of the husband.

Orders were made for the wife to retain ownership of the D Business.

The wife was to pay the husband $1,299,740.50 within three months of the date of the orders.

If she failed to do so, the husband would take ownership of the business.

Martinelli & De Luca [2017]

Further considerations must be made when the business is owned solely by one spouse, as in the 2017 case of Martinelli & De Luca.

The parties, Mr Martinelli and Ms De Luca, were in a de facto relationship and Mr Martinelli operated a business in which the wife had been employed.

The court found that although the wife had misappropriated finances from the husband's business, she had made greater contributions to the parties' assets.

The property settlement was made in favour of Ms De Luca.

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 Mondaq.com.

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

Authors
 
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”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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