hat happens to a business if you and your spouse or partner divorce? Greg Parker from Swaab Attorneys explains six scenarios for your business after a split.
Many businesses are founded and run by a husband and wife team. What happens to the business if they divorce?
The ‘clean break’ principle
The Family Court’s position is that whenever possible, there should be a clean break between ex-spouses. This means a property settlement, with the combined asset pool being broken into two chunks. When the assets include a business, the property split can take place in a number of ways.
1. Value of the business is offset by other assets
The best scenario is when there are additional assets to be divided. For example, if the business is valued at $500,000, there is other property in the asset pool with roughly the same value and the court determines that the appropriate division is 50/50, it’s easy to do a straight swap or split.
2. Property settlement from company profits over time
Obviously, for this to work, the company has to be profitable. Secondly, there needs to be an element of trust between ex-spouses, because if only one of them is working in the business, the other can’t necessarily gauge whether the profit on the books is correct.
Lawyers can provide for certain disclosures, such as