When Business and Marriage Break Up – Navigating Jointly Owned Businesses During Divorce

Breaking up is hard to do – especially when you’re not just sharing a home, but a business too. Joint business ownership adds layers of complexity to an already challenging process when marriages end. Whether you’ve built your enterprise together from the ground up or one spouse joined an existing business, understanding how these shared assets are handled during divorce is crucial for protecting your financial future. Clarity Lawyers can help you understand your options and navigate this difficult transition.

Key Takeaways

• Jointly owned businesses can be divided through selling, buyouts, continued co-ownership with formal agreements, or asset transfers depending on your situation
• Business valuation is essential and should be conducted by professional valuers using appropriate methods for your business structure
• The Family Law Act 1975 provides the framework for dividing business assets based on contributions, future needs and achieving just outcomes
• Early professional advice can help minimise disruption to business operations and protect client relationships during separation
• Tax implications, including potential CGT events, must be carefully considered when transferring business assets

Types of Jointly Owned Businesses and Legal Structures

How your business is legally structured significantly impacts the division process during divorce. Each structure brings different considerations to the table.

Partnerships

In partnerships, both partners generally have equal responsibility for assets and liabilities. If you have a formal partnership agreement, this document becomes particularly important during separation as it may outline exit procedures. Without such an agreement, the Partnership Act in your state provides default rules for dissolving the partnership.

Companies and Shareholdings

When businesses operate as companies, ownership is represented through shareholdings. During divorce, the distribution of shares, director control, and voting rights all become relevant factors. A spouse who owns 30% of shares may have different settlement options compared to one with equal 50% ownership.

Family Trusts and Discretionary Trusts

Trust structures create a distinction between legal ownership (held by the trustee) and beneficial interests (enjoyed by beneficiaries). Courts can look beyond legal formalities to determine the actual control and benefit derived from trust assets, making these arrangements particularly complex during divorce proceedings.

Other Arrangements

Joint ventures or sole trader businesses with significant spouse involvement present unique challenges. For example, a construction business legally owned by one spouse may still be considered a joint asset if the other spouse contributed through unpaid administration work, client relationship management, or financial support.

Property Division Under Australian Family Law

The division of business interests follows the same fundamental principles as other property settlements under Australian family law.

Legal Framework

The Family Law Act 1975 provides the legal foundation for property settlements, with proceedings typically managed through the Federal Circuit and Family Court of Australia. Business assets form part of the overall property pool available for division.

Settlement Principles

Courts assess:

• Direct financial contributions (capital investment, loan guarantees)
• Indirect financial contributions (unpaid work in the business)
• Non-financial contributions (supporting the family while the other spouse builds the business)
• Future needs (age, health, income capacity, care of children)
• Practical outcomes that are just and equitable

Settlement Timeline

The process typically involves disclosure of financial information, valuation of assets, negotiation between parties, and either a consent order or court determination. For businesses, this can take 12-18 months to finalise, though interim arrangements may be necessary to maintain operations.

Valuing a Jointly Owned Business

Proper valuation forms the cornerstone of any fair business settlement.

“Accurate business valuation is essential for fair outcomes. We regularly see disputes arise when parties rely on informal valuations or emotional attachments rather than professional assessments of the actual market value.” – Clarity Lawyers

Valuation Methods

Australian business valuations typically use several approaches:

• Market value (based on comparable business sales)
• Earnings-based methods (capitalisation of future profits)
• Asset-based approaches (particularly for property-heavy businesses)
• Industry-specific multiples (common in professional practices)

What Valuers Examine

Professional valuers will scrutinise financial statements, recurring revenue streams, client contracts, intellectual property, equipment values, and market conditions. They’ll also adjust for owner benefits like motor vehicles or superannuation contributions.

Valuation Arrangements

Parties can jointly engage a single valuer to reduce costs, or each engage separate valuers if disputes are likely. Costs are typically shared, though this can be negotiated as part of the overall settlement.

Options for Handling the Business

Several pathways exist for resolving business ownership during divorce.

Selling the Business

A complete sale creates a clean break but requires careful timing to maximise value. This option provides clear financial separation but ends both parties’ connection to the business they’ve built.

Buyout Arrangements

One spouse can purchase the other’s interest based on the agreed valuation. This may involve staggered payments, security arrangements, or offset against other assets like superannuation or property.

Continued Co-ownership

Some couples can successfully continue as business partners despite relationship breakdown. This requires formal agreements detailing management responsibilities, profit distribution, dispute resolution, and eventual exit strategies.

Asset Transfers

Businesses can be restructured, with assets distributed between new entities. This approach requires careful consideration of tax implications, particularly regarding capital gains tax and potential rollover relief.

Hybrid Solutions

Practical outcomes often combine elements of multiple approaches. For example, one spouse might retain core business operations while the other receives specific assets plus a cash adjustment.

Tax and Financial Implications

Divorce-related business transfers can trigger significant tax events if not carefully structured.

Capital Gains Tax

Transferring business assets between spouses may qualify for CGT rollover relief under certain conditions. However, this merely defers rather than eliminates the tax liability, which becomes relevant when the asset is eventually sold.

Ongoing Tax Obligations

During separation, the business must maintain compliance with income tax, GST, and employer obligations. Clear arrangements for who manages these responsibilities helps prevent penalties or compliance issues.

Financial Stability

Protecting cashflow during separation is vital. Arrangements should ensure supplier relationships remain stable, loan commitments are met, and customer service remains uninterrupted.

Managing Operations During Separation

Practical business continuity requires careful planning during relationship breakdown.

Interim Management

Temporary arrangements might include appointing neutral managers, clearly documenting decision authority, or establishing approval processes requiring both parties’ consent for significant decisions.

Communication Strategy

Staff and clients need appropriate reassurance without oversharing personal details. Professional, consistent messaging focusing on business continuity helps maintain confidence during uncertainty.

Protecting Assets

Immediate steps should include reviewing access controls to financial accounts, customer data, and intellectual property. Confidentiality agreements may be necessary to protect sensitive information during negotiations.

Dispute Resolution Options

Most business settlements are resolved without court intervention.

Mediation and Collaboration

Facilitated negotiations offer cost-effective resolutions that can preserve business value and relationships. These approaches typically require financial disclosure, valuation evidence, and willingness to compromise.

Financial Agreements

Binding Financial Agreements can formalise settlements and provide certainty. These agreements require independent legal advice for each party but offer flexibility in structuring business transitions.

Court Intervention

In high-conflict situations, interim court orders may be necessary to prevent asset dissipation, maintain operations, or ensure fair information access. These measures are typically last resorts when cooperation breaks down.

Practical Steps for Business Owners

Taking prompt, organised action helps protect business value during separation.

Immediate Actions

Secure comprehensive financial records, establish protocols for business expenditure, and document the current state of the business. Consider joint signatory requirements for major transactions during the interim period.

Mid-term Planning

Engage appropriate advisers, obtain professional valuations, and develop a business continuity plan. Begin exploring settlement options that might work for your specific situation.

Settlement Phase

Finalise formal agreements, implement ownership transitions, update regulatory registrations, and communicate changes to stakeholders. Establish clear timelines and responsibilities for each step in the transition.

When to Seek Professional Help

Specialist advice early in the process can prevent costly mistakes.

Advisory Team

An effective team typically includes a family lawyer, commercial lawyer, accountant, tax specialist, and business valuer. For complex businesses, industry-specific advisers may also be necessary.

Preparation Materials

Bring financial statements, tax returns, trust deeds, shareholder agreements, business registrations, loan documentation, and asset registers to initial consultations. This comprehensive information helps advisers provide targeted guidance.

Managing Costs

Consider fixed-fee arrangements, staged engagements, or shared expert costs where appropriate. While professional advice involves expense, it typically delivers value by protecting business assets and achieving sustainable outcomes.

Moving Forward After Business Settlement

Finalising your business settlement provides an opportunity for a fresh start. Whether you’re continuing with the business, starting something new, or moving in a different direction entirely, having clear legal documentation of your settlement provides certainty for your future planning.

Navigating the division of a jointly owned business during divorce requires patience, strategic thinking, and expert guidance. With proper planning and the right advice, you can achieve outcomes that respect both parties’ contributions while establishing a foundation for future success. Clarity Lawyers specialises in helping business owners through this challenging transition, providing the expertise needed to protect what you’ve built while creating pathways to new beginnings.