Family law issues can be disruptive to a business entity, with the potential to adversely affect its activities, cashflow, and financial viability. Problems can stem from a relationship breakdown between domestic co-owners, or the divorce or separation of a third-party business partner or shareholder.

Protecting a business from potential loss and disruption in the wake of family law proceedings requires proactive measures. Whether a person owns a business interest individually, jointly, or through a partnership, company or trust, that interest must be disclosed if he or she is party to a property law matter and considered in the pool of assets available for division between the separated parties.

This article looks at some strategies business owners might consider to help safeguard their business from the impacts of a family law matter. The information is of a general nature only, and we recommend seeking professional advice relevant to your circumstances.

Proactive steps to safeguard your business from divorce or separation

Risk management is about implementing strategies to minimise the adverse effects of an unforeseen event. As the name suggests, risk management is proactive and should take place at the planning phase of a business. There are certain steps that all business owners can take to minimise the impact a separation or divorce can have on their business.

Consider the business structure and its ownership

Choosing the best legal structure for your business will take into consideration a range of factors – the size and nature of the business, its anticipated growth and the personal and financial circumstances and objectives of the owners.

Although the Court has discretion to make a range of orders in family law proceedings, different business structures may be treated differently. For example, businesses wholly owned by one or both spouses / de facto partners are generally treated similarly to the other matrimonial assets of the parties, with consideration given to the parties’ respective contributions and involvement when making orders. When a business is owned in partnership with third parties or other shareholders, a Court may be less likely to make orders that fracture the business interests of the other owners.

Trusts, when properly created and managed, can assist in safeguarding assets in certain circumstances, however do not guarantee their protection in a family law property settlement.

Talking to your lawyer and understanding the different types of business structures can help you choose the most appropriate one for your circumstances.

Binding Financial Agreements

A financial agreement is a legal contract between a couple and may be entered before or during a marriage or de facto relationship, or after a relationship ends. These are sometimes referred to as ‘pre-nups’. The agreement predetermines the division of a couple’s assets in the event of, or after separation, and can deal with a range of financial matters, including the treatment of business interests.

A financial agreement can help keep the activities of a business on track in the event of separation by stipulating who should continue running the business, with provisions enabling one party to buy out the other at an agreed price, or based on an agreed method of valuation.

There is, however, a risk that a financial agreement could be subsequently voided by a court post-separation. Your lawyer can advise about the applicable law and risks of entering a financial agreement.

Partnership / shareholder / buy-sell agreements

Many people do not realise the impact that a third-party business partner’s family law matter can have on a business. A carefully drafted agreement can help keep the ‘status quo’ of a business and preserve its value in the event of such circumstances.

Partnership agreements, shareholder agreements and buy-sell agreements deal with a range of matters governing the relationship between business owners. In particular, these agreements can include provisions setting out what will happen should a specified event occur, such as the death, retirement or separation / divorce of a partner.

A buy-sell agreement includes rights and provisions for acquiring and disposing of interests in the business and specifies certain events that will trigger the right to exercise such options. The triggering events usually include the death, retirement, separation or divorce of a partner. Effectively, the agreement can restrict the ownership interests in the business to the existing parties, preventing an ex-spouse of an owner from acquiring an interest in the business as a result of a property settlement. Typical provisions include:

• prohibitions on departing partners, or their estates, from transferring / selling an interest to a third party without the prior written consent of all remaining owners;
• mandatory rights or right of first refusal for a remaining owner or owners to acquire interests from a departing owner, his or her estate or ex-spouse;
• methods for valuing a departing owner’s interest in the business;
• the automatic conversion of an interest to a non-voting interest upon the triggering of a certain event;
• funding / instalment arrangements for the acquisition of the business interests from a departing owner.

Similarly, where the business partners are also domestic partners, the agreement can stipulate the division of business interests in the event of separation or divorce (including which partner shall ultimately own the business) and how interests are to be valued.

Maintain accurate records

As well as making good business sense, maintaining sound financial and other records can be very beneficial for attributing contributions made between spouses / de facto partners to a business post-separation. These numbers and records will be important when determining respective interests if negotiating a property settlement and can greatly assist your lawyer when advising on the division of assets.

If a business owned outright between spouses or de facto partners is profitable, one of the parties may wish to retain it and ‘pay out’ the other. Alternatively, the business may be sold to a third party as a going concern while it is performing well. The more profitable the business is, the more likely the parties may dispute its future direction and the division of interests. Typical considerations will be the respective contributions of each party to the success of the business, whether financial or non-financial, and determining its value. In such cases a formal business valuation by a qualified expert can be beneficial.

In hindsight…

Many business owners do not realise the impact a family law matter can have on their business, and it is not uncommon that planning for these contingencies is overlooked. In such cases, a sensible and cooperative approach is required to safeguard the business as it is in nobody’s interests to jeopardise its value because of intractable negotiations.

Preferably, the parties should explore alternative dispute resolution processes with the aim of achieving a fair outcome, remembering that the Court has discretionary powers to order a ‘just and equitable’ division of property including interests in the family business.

Talking to your lawyer and taking the time to plan for unexpected events can greatly assist in protecting the value and longevity of a business

If you or someone you know wants more information or needs help or advice, please contact us on 07 32816644 or email mail@powerlegal.com.au.

Mediation is a valuable and widely utilised method for resolving legal matters. This alternative form of dispute resolution is particularly valuable when it is desirable to maintain a relationship with the other party after the dispute, as is often the case in family law matters. Mediation offers a collaborative and less adversarial approach to addressing family law issues related to separation, divorce, parenting, property division, and more. This article explores how mediation works, when it can be used, the benefits it offers, what to do when it does not work or may not be appropriate, and how to prepare for family law mediation.

How Does Mediation Work?

Mediation is a structured process in which an impartial third party, known as a mediator, assists parties in reaching agreements on various legal issues. Typically, there are several different stages of mediation.

The first stage is the initial meeting between the parties and the mediator. The mediator will explain their role in facilitating communication and negotiation and describe the mediation process. The mediator may also use this opportunity to ask each party to outline their understanding of the issues in dispute.

The next stage of the mediation is information sharing. The mediator will prompt the parties to share relevant information, documents, and concerns about the issues. Transparency and open communication are crucial for effective mediation. For this reason, mediation is often undertaken on a “no prejudice” basis, meaning that the parties can freely share information to try and reach a solution, without this information being used against them in any later court action.

After the key information has been shared by both parties, the negotiation stage will begin. The mediator will guide discussions and help the parties to explore possible solutions. Skilled mediators use various techniques to foster communication and encourage compromise. This stage is usually the longest in duration and may take several hours or an entire day to try and reach a solution.

Of course, the final stage of the process – the agreement – does not occur in every case. However, if the parties do manage to reach an agreement on one or more issues, the mediator will assist in documenting the agreement.

Parties who were not represented by a lawyer during the mediation will often seek independent legal advice at this stage to review the agreement before finalising it. Once the agreement is reviewed and accepted, it may be presented to the court for formalisation as a legally enforceable agreement.

When Can Mediation Be Used in a Family Law Matter?

Mediation can be used for a range of family law matters but is mostly used to negotiate parenting and property disputes.  Even if mediation does not result in a complete resolution for these matters, it often helps narrow down the issues in dispute, making court proceedings more focused and efficient.

Mediation is not only useful when there is a conflict, it can also be a good environment for separated co-parents to create parenting plans, make decisions about parenting, and agree on how to parent their children. Even parents with otherwise good co-parenting relationships may find mediation useful when dealing with some issues. For instance, co-parents who struggle to agree on one or two matters where each feel strongly (such as whether or not to raise their child in a particular faith) may benefit from the presence of a neutral third party guiding them to a compromise that works for both.

Separated parties can also use mediation to negotiate the division of assets and liabilities, including the family home, finances, investments, and superannuation. Mediation can be particularly helpful when a property settlement involves complex issues. For instance, if a main asset in the property pool is a family business that must continue to operate to retain its value, dividing this asset may require complex negotiation to enable a fair and equitable outcome. Mediation can also allow discussion of issues such as spousal support, especially when this forms part of a broader agreement about the division of the property pool.

The Benefits of Mediation

Mediation offers numerous benefits. Perhaps most importantly, parties in a mediation have greater control over the outcome compared to other options such as applying to the courts for a decision about their family dispute. This control can give the parties a sense of empowerment and ownership of the solution, as they have actively participated in crafting an agreement that works for their unique situation.

The collaborative nature of mediation can also help to reduce animosity and improve post-separation relationships. This is particularly important for co-parents, who will potentially need to continue to work cooperatively for many years. Because mediation prioritises the best interests of the children and promotes child-focused solutions, it is consistent with the approach of the courts to parenting disputes. Of course, even in family cases where no children are involved, most parties will benefit from participating in a system which is less adversarial and inflammatory than traditional litigation.

Mediation often leads to a quicker resolution compared to lengthy court processes, which can take months or even years. As a result, mediation is generally more cost-effective than litigating in court, as it typically requires fewer legal fees and court-related expenses. Mediation is also more flexible than litigation, as it allows the parties to decide which issues are important and need to be explored.

Finally, as mediation sessions are confidential, they generally foster open and honest communication between parties. For some parties, the confidential nature of this process is of the utmost importance, as the issues included in a court case are a matter of public record.

When Mediation Doesn’t Work or May Not Be Appropriate

While mediation is effective in many family law cases, it may not always be appropriate or successful in every situation. For instance, if there is a significant power imbalance between the parties, mediation may not provide a fair forum for negotiation. In particular, mediation is often not safe in situations involving domestic violence, intimidation, or threats. Similarly, in cases where urgent decisions are needed, such as child safety concerns, immediate court action may be necessary. In such cases, seeking legal protection should be the priority.

In addition, mediation requires both parties to be committed to the process and willing to compromise. If one or both parties are unwilling to negotiate in good faith, mediation may not be productive. Finally, in some highly complex financial or legal matters, mediation may not be the most suitable vehicle for resolution. Such cases may require the expertise of a family lawyer and, potentially, court intervention.

Preparing for Your Family Law Mediation

It is advisable for all parties to seek legal advice prior to mediation. Even in cases when lawyers will not be at the mediation, it is still wise for each party to consult with a family lawyer before mediation to understand their rights, responsibilities, and the potential legal outcomes.

Both parties should ensure that they collect all relevant documents, financial records, and information about the issues to be discussed. A solution is much more likely to be reached on the day if exact figures and facts can be provided.

There is also emotional and mental preparation required prior to a mediation. A successful mediation is more likely when the parties have prepared emotionally for the process, understanding that mediation may involve difficult discussions and compromises. Each party should identify their goals and priorities for mediation, including what outcomes they hope to achieve (the “best case” scenario) and the outcome that they can accept (the “worst case” scenario).

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Divorce is almost always a difficult and disruptive life event. For couples who own a family business, the stakes are particularly high, as the fate of the business often becomes a central point of contention during divorce proceedings.

In Australia, a family business is considered part of the asset pool of the relationship, regardless of whether it was established before or during the relationship. Navigating the complexities of separating business and personal interests after separation requires careful planning and help from the right professionals.

Death of a Business

It is realistic to acknowledge that not all family businesses survive the upheaval of divorce. Some businesses may struggle to weather the financial strain and operational disruptions caused by the separation, leading to their eventual closure or liquidation.

Others may be irreparably damaged by acrimony and conflict between the spouses, making it impossible to continue operating in any meaningful capacity. In such cases, the spouses may be forced to sell off the business assets and divide the proceeds as part of the property settlement.

When this happens, the realised value of the liquidated business (if there is any) is simply added to the spreadsheet that tracks the total property pool of the relationship. The separating parties then need to agree on what percentage split each person is going to receive from the property pool. If they cannot agree then the Federal Circuit and Family Court of Australia will decide for them. In making this decision, the Court will consider things such as the length of the relationship, the contributions of each party to acquiring and keeping the assets of the relationship, and each person’s future needs.

Dividing a Living Business

If the business is to continue to operate, then the first step is to determine its value as a going concern. This can be a complex process, especially for businesses with significant assets, intellectual property, or goodwill. Valuation methods vary depending on the nature of the business and may involve assessing factors such as revenue, profits, market trends, and industry benchmarks. In some cases, forensic accountants or business valuation experts may be enlisted to provide impartial assessments of the business’s worth.

Once the value of the business has been determined, the next step is to decide how it will be divided between the parties. This can be particularly challenging when both spouses are actively involved in the business or have made significant contributions to its success.

The Court has broad discretion to make orders for the division of property. For instance, one spouse may be ordered to buy out the other’s interest in the business, either through a lump-sum payment or a series of instalments over time. This option allows one spouse to retain ownership and control of the business while compensating the other for their share of its value.

Alternatively, it may order the sale of the business and the equitable distribution of the proceeds between the spouses taking into account the distribution of other assets of the relationship (such as the family home or superannuation accounts).

While selling the business may not be in the financial best interests of either party or the business itself, the Court will make this order if it is the only equitable way to ensure that the property pool is divided between the parties.

In most cases, the Court prefers there to be a clean and final separation of all marital assets after the breakdown of a relationship. However, in some cases, the best option is for the spouses to continue operating the business together post-separation, either as joint owners or through a partnership or corporate structure. While this arrangement can be fraught with challenges, particularly if the spouses have a contentious relationship, it may be the best option for preserving the value of the business and ensuring its ongoing viability.

In such cases, it is essential to establish clear guidelines and protocols for decision-making, conflict resolution, and the division of responsibilities to minimise friction and maximise cooperation.

Conclusion

Ultimately, the fate of a family business after a couple separates in Australia depends on a variety of factors, including the value of the business, the contributions of each spouse, and the willingness of the parties to cooperate and compromise. While the process can be fraught with challenges and uncertainties, seeking the guidance of experienced legal and financial professionals can help couples navigate the complexities of dividing assets and planning for the future.

By approaching the situation with pragmatism, transparency, and a commitment to fairness, couples can mitigate the impact of divorce on their business and lay the groundwork for a successful transition to the next chapter of their lives.

This is general information only and you should obtain professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

When someone passes away, questions often arise about inheritance. In cases where a person believes that they have not been adequately provided for by a deceased family member (whether or not a Will was left), certain laws may enable them to make a family provision claim to help make the situation fairer.

This article discusses common questions people may have about contesting a Will in Queensland. The information is general only and we recommend obtaining legal advice tailored to your circumstances.

1. Am I Eligible to Make a Family Provision Claim?

In Queensland, the Succession Act 1981 gives the court discretion to order provision from the estate of a deceased person on the application of an eligible spouse, child or dependant, if adequate provision has not been made from the estate for the person’s proper maintenance and support.

A spouse includes married, de facto and civil partners and a child includes biological children, adopted children and stepchildren. A dependant includes someone who was wholly or substantially maintained or supported by the deceased person at the time of their death and was a parent of the deceased, the parent of a surviving minor child of the deceased, or a person under the age of 18 years.

An experienced estate lawyer can assess your relationship with the deceased and the surrounding circumstances to help determine your eligibility to make a family provision claim.

2. Are There Time Limits to Make a Family Provision Claim?

Yes, strict time limits apply. An applicant must give notice of their intention to make a family provision claim to the estate’s legal representative within six months of the deceased’s death, and the application must be made within nine months of the date of death.

It is essential to act promptly and seek legal guidance to ensure this deadline is met. Only in limited circumstances, might the court grant an extension of time, and an out-of-time application is at the court’s discretion and is not guaranteed.

3. Can I Make a Family Provision Claim if there is no Will?

Yes. If someone dies without a valid Will in Australia, they are said to die intestate and the law in the relevant jurisdiction sets out how their assets will be distributed. Whether or not a family member will receive an inheritance under these laws depends on their relationship with the deceased, and the specific circumstances.

If a person dies intestate, an eligible person may be able to make a family provision claim if the proposed distribution under the intestacy laws does not adequately provide for their proper maintenance and support.

4. Will I Have to go to Court for a Family Provision Claim?

Some family provision claims end up in court, however, many are resolved through negotiation or mediation. Mediation usually offers a less formal and more cost-effective way to reach an agreement. The executor of the Will has the power to negotiate and settle claims, however, in doing so, should be guided by a lawyer experienced in family provision claims.

If an agreement cannot be reached, court proceedings may be necessary.

5. What Does a Court Consider When Determining a Family Provision Claim?

When deciding a family provision claim, the court considers a range of factors to determine whether adequate provision has been made for the applicant’s proper maintenance and support and whether they should be provided for, or further provided for, from the estate.

Each case is different and must be assessed on its specific circumstances. Typical factors that may be considered include:

• The applicant’s circumstances – age, health and financial needs
• The applicant’s character and relationship with the deceased
• The size of the estate
• The financial needs and resources of other beneficiaries or the strength of any competing claims
• Any contributions the applicant made to the deceased’s welfare

The court aims to achieve a fair and equitable outcome for all parties involved.

6. How Much Will It Cost to Make a Family Provision Claim?

The costs of making a family provision claim can vary depending on the circumstances, the complexity of the case and whether the matter proceeds to court. It is important to discuss fees and potential costs upfront with your lawyer. If the matter proceeds to litigation, the court has discretion regarding how costs will be awarded.

7. How Long Will a Family Provision Claim Take?

The timeframe for resolving a claim can vary significantly. Many claims are resolved within a few months, especially if settled through negotiation or mediation. However, if court proceedings are required, the process can take longer. Seeking professional advice early from an experienced estate lawyer can help ensure the best possible outcome and potentially expedite the process.

Conclusion

This is general information only and you should obtain professional advice relevant to your circumstances. Family provision claims can be complex, and the families involved are usually also dealing with emotional and other challenges. Whether you are making or defending a family provision claim, it is important to consult an experienced lawyer specialising in estate law to discuss your specific circumstances and receive personalised advice.

If you or someone you know wants more information or needs help or advice, please call 07 32816644 or email mail@powerlegal.com.au.