Protecting your business interest under Family Law

Dividing assets during a separation and divorce can be particularly difficult when one or both parties to a relationship own a business, such as a pharmacy, particularly if it is the main asset of the relationship.

Treatment of Businesses in Family Law

The existence of businesses can lead to challenges in distributing assets upon a relationship breakdown, particularly where it is not possible to both enable the person who owns the business to maintain that interest and also provide the other person with their full entitlements under the provisions of the Family Law Act.

Furthermore, the Family Court preferences a ‘clean break’ principle. This principle weighs against outcomes whereby both parties to a marriage or de facto relationship maintain their joint interests or involvement in the same business on an ongoing basis as part of an overall financial settlement.

If one person to the relationship would be disadvantaged by the other person retaining an income-producing asset such as pharmacy business, to the extent that a just and equitable financial settlement could not otherwise be achieved, then the Family Court will likely make an Order that the business be sold and the net profits divided between the parties.

Protecting your business in the context of Family Law

Given the Family Courts extensive powers to make Orders affecting the ownership or division of business interests, it is prudent for parties with a business interests to consider their options for protecting assets prior to any potential family law issue arising.

Although the Family Court will endeavour to avoid the need to sell a business or deprive parties of assets which provide their livelihood, the Court is bound to produce outcomes that are just and equitable in the circumstances of each case. As such, there is no guarantee that the business will be retained after separation.

The most effective way of ensuring that a relationship breakdown will not jeopardise the ongoing operation or ownership of a business is for the parties of a marriage or de facto relationship to enter into a Binding Financial Agreement. Binding Financial Agreements can be entered into before, during or after a marriage or de facto relationship.

A valid Binding Financial Agreement has the effect of removing the Family Courts’ jurisdiction to determine a financial settlement between separating parties in relation to property that is subject to the agreement. This can include business interests.

As such, Binding Financial Agreements can effectively be used as a means of quarantining a business from the asset pool available for division between separating parties, or ensuring that the person who brought the business into the relationship retains the right to continue their ownership unaffected.

Owners and operators of businesses are strongly encouraged to seek legal advice from a qualified family lawyer with a view of taking steps to preserve their interests well before the possible development of any family law issues.

– Stephen Gregory Partner, Loren Gulliver Associate at Kenna Teasdale Lawyers

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