Nobody wants to think about it when times are good, but the break-up of a marriage can have huge consequences for business owners. While you may not want to go as far as a pre-nup, you can follow some smart advice.
For many who are faced with the breakdown of a marriage, the all-encompassing nature of the situation pushes most things to the back of the mind. For small business owners however, it is important that some thought is given to the future of the enterprise.
If you are looking to keep your business running smoothly and profitably during and after the proceedings, it is important to obtain legal advice from the outset so appropriate plans can be put in place to best preserve your position and that of your business. Importantly, business owners need to acknowledge that irrespective of the source, the property of each party is taken into account. This means that any asset, including funds and profits relating to a business, as well as your interest in a family company, will be taken into account.
The difficulty of keeping your business intact will be partially determined by measures enacted by you prior to separation and during the negotiation process, however there are a number of things which you should keep in mind throughout so as to give your company its best possible chance of surviving in its current state.
You must handle the truth
One of the most common mistakes small business owners make when preparing for separation proceedings is failing to acknowledge that the current value and future earning capacity of their company will be taken into account.
One reason for this is the commonly held, and often misguided belief, amongst many business owners that divulging information regarding your financial position can play into the other party’s hands. If you want to resolve your family law dispute quickly and with limited collateral damage however, it is vital that you provide full and frank disclosure of your financial circumstances and that of the business.
Following this, it is vital you correctly determine the value of your business. Knowing exactly how much your business is worth is imperative when entering into negotiations with your ex-partner.
Unfortunately, no two valuations are identical. In order to get the most accurate reflection of what your business is worth, it is imperative that you seek advice from your lawyer and forensic accountant as soon as possible. Work with your accountant and lawyer to forward plan to ensure you are adequately prepared for the upcoming proceedings.
Any disagreements as to a company’s value will be usually addressed through the appointment of an independent forensic accountant, who is appointed on behalf of both parties to research and report on to the value of your interest in a company. In these instances it is imperative that you work closely with your lawyer and your own accountant so that the right questions are asked of the expert during the early stages of the valuation process. This will hopefully avoid an excessively high value being placed upon your business which will make it harder for you to account for if you elect to remain in complete control of your company.
The benefit of a jointly prepared valuation is that if accepted by both parties, you have an agreed value in respect of such assets which provides you and your ex-partner with the ability to properly negotiate a settlement.
Compromise is not a dirty word
Luckily, not all separations are hostile. Often both parties want the same thing. While this is often a Godsend when a family business is involved, it’s still important for the right processes to be in place to ensure this outcome is achieved. Once you have your valuation in place, then mediation is always a good idea.
Mediation is a growing trend in family law disputes, with its major goal to increase cooperation between both parties in order to achieve mutually beneficial outcomes. The process is gaining popularity as it places a significant focus on exploring ideas, and encourages both parties to share relevant information to test a range of possible solutions. While this not only helps break down some of the residual hostility commonly evident in legal proceedings, it can also prove very useful when trying to save your business.
The mediation process is a time to be imaginative. Tell your lawyer that your main aim is to ensure the continued success of your business. Importantly, also let them know what you are willing to sacrifice to achieve this goal. Often solutions which you hadn’t initially considered arise during this process, which can see settlements structured in a pragmatic and tax effective manner to maximise the assets available for distribution and secure the future of your business.
Although, as we all know in business, waiting until the last bell tolls isn’t always the best solution. If you are in a relationship, or are about to be married, there are some legal measures which can be employed at the outset to help safeguard the future of your company.
Have the right business plan
Business owners know that forward planning is the best way to avert disaster. The same is often true in law. While there are options which can be explored following the breakdown of a marriage, a pre-nuptial agreement (Section 90B Binding Financial Agreement) represents the most that the law presently offers to business owners seeking to secure their company’s future from claims arising out of their marital relationship under the Family Law Act.
A Binding Financial Agreement can deal with all property and financial resources of parties, or alternatively an agreement may only seek to deal with select assets only, for example a family business. The purpose of such agreements is that, provided it satisfies the legal requirements under the Family Law Act and is appropriately drafted, the Family Court cannot entertain an application that is contrary to the terms of the Agreement.
Another benefit of such an agreement which is also often overlooked is that it confirms both parties’ intentions when times are good. It can be easy to lose sight of this in the uncertain times following a break-up, so solidifying your intentions for the business while everyone is happy can have a positive and binding impact on your company following a separation.
There are a couple of factors business owners should take into account when entering into a pre-nuptial agreement. In order to assure the legal validity of the document, it is vital that both parties have obtained independent legal advice and that everyone is aware of the advantages and disadvantages of entering into an agreement.
Also, when considering a Binding Financial Agreement it is important to note that potential changes to the law, along with the future financial position of your spouse will remain uncertain. While a pre-nuptial agreement provides your business with its best legal protection, it does not offer complete security for your business.
The breakdown of a marriage is challenging, and can be even more challenging when a business or trust is involved. While the law can at times appear very black and white, there are measures which can be taken to help protect the business you love. If your major desire is to see your company continue operating the way it is currently, it’s important that you inform you lawyer early and enter the process with an open mind.
The break-up of a marriage doesn’t have to mean the breakup of a business. The business owners who act quickly, seek advice and are aware of the processes are usually the people who survive with their businesses intact.
