Property settlements can be complex, but they become even more intricate when one or both parties are company directors or own business interests. Under the Family Law Act 1975, business assets are treated as part of the property pool and are subject to division during separation or divorce.
For company directors, protecting the financial stability of the business while ensuring a fair division of assets requires careful consideration.
This article outlines the key factors that influence property settlements involving company directors in New South Wales and what steps you can take to safeguard both your business and personal financial future.
Key Takeaways
- Business interests are considered property in divorce or separation proceedings.
- Proper valuation of business assets is crucial for fair settlements.
- Courts assess both financial and non-financial contributions to the business.
- Company structure, cash flow, and tax implications influence settlement outcomes.
- Seeking legal and financial advice is essential for company directors navigating property settlements.
How Business Assets Are Treated in Property Settlements
In NSW, businesses are considered property and form part of the asset pool to be divided between separating parties. This includes:
- Private companies
- Partnerships
- Sole trader businesses
- Family businesses
- Business operated by trusts
Regardless of whose name the business is registered under, the court considers the business’s value as part of the shared asset pool.
Key Considerations for Company Directors in Property Settlements
1. Valuation of Business Assets
The first step in any property settlement involving a business is an accurate business valuation. This process ensures both parties understand the value of the business and its assets. Business valuations typically assess:
- Tangible assets (e.g., equipment, property)
- Goodwill and reputation
- Cash flow and profitability
- Intellectual property
- Liabilities are taken into account
Independent expert valuers, some of whom are forensic accountants, are often engaged to conduct impartial valuations, especially in cases involving complex corporate structures and Trusts.
2. Ownership Structure
The structure of the business can significantly influence how it is handled in a property settlement. Common structures include:
- Sole trader
- Partnership
- Private company
- Family trust
The legal ownership and the distribution of shares or interests will affect how the asset is divided. This is relevant when the court is being asked to consider the justice and equity of a proposal. A business owner typically wishes to avoid the business being forcibly sold as a ” fire sale” which usually results in a huge discount. The fact that a business or the shares in the company are registered in one party’s name, that does not take it off the table for the purposes of division.
3. Contributions to the Business
Both financial and non-financial contributions to the business are considered when dividing assets. The court will examine:
- Direct financial investments
- Efforts in managing or operating the business
- Indirect contributions, such as homemaking or supporting the business owner
This ensures that contributions from both parties—whether direct or indirect—are acknowledged in the settlement.
4. Maintaining Business Operations
One of the biggest challenges for company directors during separation is maintaining the viability of the business. Any disruption in ownership or financial restructuring could impact:
- Business cash flow
- Employee stability
- Client relationships
- Future profitability
Careful negotiation is needed to avoid selling or dismantling the business unnecessarily. Solutions like transferring shares or offsetting business value against other assets can help preserve business continuity.
5. Tax and Financial Implications
Dividing business assets may have significant tax consequences, including:
- Capital Gains Tax (CGT) liabilities
- Stamp duty on asset transfers
- Impacts on business loans and liabilities
It’s vital to consult with financial advisors or accountants to understand and mitigate any adverse financial outcomes during the settlement process.
New loans may need to be negotiated in place of existing ones, director guarantees discharged with new ones put in place, mortgage backing of company may be withdrawn. There are far too many variables to list here. The important thing to remember is to be open about everything so that a solution may be discussed in the course of the negotiations.
How Courts Determine a Fair Settlement
The family court uses a four-step process to determine a fair property settlement:
- Identify and value all assets and liabilities, including business interests.
- Assess contributions made by both parties—financial and non-financial.
- Evaluate future needs, such as earning capacity, care responsibilities, and financial resources.
- Ensure the outcome is just and equitable, balancing the interests of both parties.
This process ensures that the business’s value is considered in the context of the entire asset pool and each party’s needs.
Protecting Your Business During a Property Settlement
To protect business interests during a settlement, company directors should:
- Engage legal and financial experts early in the process.
- Be transparent in financial disclosures to avoid legal penalties.
- Explore settlement options that allow you to retain business control, such as offsetting the business’s value against other assets.
- Consider Binding Financial Agreements (BFAs) if entering into a new relationship.
Conclusion
For company directors, navigating property settlements requires balancing personal entitlements with the long-term viability of the business. Understanding how business assets are treated, obtaining accurate valuations, and seeking expert legal and financial advice are essential steps toward achieving a fair and sustainable outcome.
If you’re a company director facing a separation or divorce, consulting our experienced family lawyers can help protect your business while ensuring a just division of assets. Contact us for a confidential consultation today.
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