Business affairs including strategies to keep your business moving forward during separation
Divorce is a stressful time. That stress can be compounded where one or both spouses are running a business. Is the business part of the asset split? Who keeps it? What is it worth? How do you keep it running in the meantime?
A share in a business is an asset
A share in a business is usually regarded as an asset and forms part of the asset pool for division. This is the case even for family businesses owned together with children or siblings, or where the business is owned with external business partners. It is also the case where the business operates though a trust, company or partnership.
So, what are the first steps?
If both spouses are working in the business, one of the first issues to resolve is whether both spouses will keep working in the business throughout the settlement negotiations. Keeping the business running and profitable throughout the negotiation process is vital. High levels of conflict between spouses has the potential to spill over into the workplace, affecting staff, customers, cashflow and profitability. Ways to avoid this can include:
Having clearly defined job roles and responsibilities
- Drawing up a schedule for which spouse is to be in the office on which days
- Having your accountant/manager step in to run management meetings
- One spouse stops working in the business
If spouses decide that one person will stop working in the business during negotiations, then there needs to be agreement about:
- how that spouse will access income in the meantime
- how that spouse will continue to have visibility of the business’ financial information and operations
Next step – reaching an agreement about the value of the business
This can be complex where business assets include intellectual property, real property holdings with development potential, or incomplete projects/deals.
Spouses can agree on a value for their business, or if no agreement can be reached, or if the business is highly profitable, specialised or otherwise complex, then a joint expert valuation can be obtained. In most cases, both the business, real property and plant and equipment owned by the business are usually valued by independent jointly appointed experts with family law experience. Whilst there are many ways to value a business in family law cases (and every business will be unique) the most used methods are:
- net assets of the business
- future maintainable earnings
Is the business going to be sold?
Just like any other asset in the pool it will need to be decided if one party is retaining the business or if it is being sold. It is rare for spouses to continue running their business together after divorce.
If you own the business with external business partners, it is common for these partners to be concerned about the divorce causing disruption to the business, the leakage of market sensitive information through the disclosure process or the sale/end of the business. Keeping external business partners informed and reassured can help allay these concerns. In some instances, confidentiality agreements might be requested.
The end of the marriage does not have to be the end of the business. However, like a good business plan, careful, considered management of the negotiation process and what occurs throughout is integral to the business surviving (or even thriving) to whether the performance of a business during this process.
How we can work with you, teams of experts and your partner’s lawyers to keep your business going