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Separating as a business owner? Here are some key issues to consider.

 

Negotiating a family law settlement can be difficult at the best of times, especially when a large chunk of your wealth intertwines with your business. Having seen and supported clients through this situation, we understand what to look out for and be aware of. This Bayside Family Law Solutions blog explores the scenario of separating as a business owner and outlines the key issues you should be informed about.

Here is an example of a common scenario we see in our family law firm:

“Meet Joe. He owns a 20-year-old manufacturing business, which has had good years and bad. He is also starting the process of separating from his wife, Jane, with whom he runs the business.

Joe has paid many personal expenses out of his business account, reflected by a loan account on the balance sheet. As he is focused on the day-to-day grind of the business and relies heavily on his accountant, Joe’s record-keeping and filing systems are less than stellar.

He knows that his business structure involves a trust but isn’t sure who or what owns the business or if his wife Jane is a director of his company or a trustee.

Joe and Jane also have a self-managed superannuation fund (SMSF) that owns the factory where Joe’s business operates and not much else.

The main assets of the business are:

  • Plant and equipment.
  • Vehicles, and
  • Cash at the bank

Jane believes they would achieve a substantial return if they sold, but Joe is less confident, stating that she isn’t fully aware of the business’s current performance.

Apart from the business and SMSF, Joe and Jane’s main asset is their modest family home. Joe hopes for a 50/50 split with Jane and wishes to continue running the business. He intends to use a portion of the settlement as a deposit to buy a new home. However, he has yet to seek advice from a family lawyer.

Joe’s situation isn’t unusual, but as he doesn’t have a complete and thorough understanding of the structures, entities and financial matters surrounding his business, he could be in for a difficult and protracted settlement.

Unless Joe gets his act together and can find the documents and information he needs, he could face:

  • Nasty surprises from the ATO,
  • Delays in building his own case while he responds to Jane’s lawyers,
  • Challenges in property settlement, and/or
  • Missed business opportunities

If you are facing a situation similar to Joe’s, here are three main tips from a seasoned family lawyer.

 

TIP 1 – Get organised

What’s required to get organised in your separation as a business owner will vary from case to case. However, the most crucial steps are:

  1. Talk to your accountant and ensure you understand your corporate entities, the relationships between them, and who holds key positions, such as directors, trustees, shareholders.
  2. Run a health check on your business – talk to your accountant and identify any issues that cause additional problems in your settlement. g. Do you have potential Div 7A issues? Is your SMSF compliant? Are there any bad debts to be written off?
  3. Start organising your documents now for when you must provide copies to your spouse. The company constitution, annual ASIC returns, trust deeds, partnership agreements, financial reports and tax returns, business bank statements, SMSF deeds and annual returns will all be required. This is in addition to your personal tax returns, bank statements and other relevant documents.

 

Tip 2 – Work closely with your advisors

You will benefit from investing quality time with your lawyer and accountant to assist you in navigating the issues and achieving a favourable outcome.

  1. Get good legal advice ASAP – your lawyer will work with you to identify the range of potential outcomes, get clarity on your goals, zoom in on the main issues in your case, and work with you (and your accountant) to make sure that opportunities and risks aren’t missed.
  2. Flush out the debts – now is the time to deal with financial obligations or costs you have been putting Joe should chat with his accountant about the loan he owes to his company and whether a dividend should be declared, which might trigger some additional income tax. He should also determine what exemptions might be available on asset transfers required as part of his settlement with Jane.

 

Tip 3 – Do the work required to crunch a deal

 Settlements in these cases often don’t come easily. Our tips are:

  1. Promptly comply with disclosure obligations and respond to queries on behalf of your spouse. This can be a time-consuming chore and may test your patience, but it will be necessary to reach a settlement.
  2. Create time and headspace – you’ll need to commit time and effort to this process. Although your advisors will assist you, there will be some graft required on your part and you’ll be the one who needs to live with the outcomes achieved during the process.
  3. Be prepared to make tough decisions – navigating your post-separation life requires careful consideration and resolve.Joe should have a hard look at the option of his SMSF selling the factory if he really wants to buy his own home when his settlement is done.

 

If the issues discussed in this blog resonate and you are in need of family law advice or legal representation to help you work through your settlement, our team at Bayside Family Law Solutions can help you. For support that helps you get back to living a great life, contact our experienced family law team here.

 


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