August 2008


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Article: Divorce-Proofing a Business


Divorce-Proofing a Business
Susan Warda C&G

Divorce is a difficult and painful time for anyone.  But when a family business is involved, the implications are enormous.   You simply cannot isolate them completely from the process, especially when both spouses are directors of the business or have legitimate claims on the business.

So how can business owners who choose to end their relationship ensure that their business, which may have taken many years of hard work and dedication to build up, is not destroyed in the process?

Susan Warda, Principal of leading, western Sydney based law firm Coleman & Greig and an accredited specialist in family law, believes that the process of collaborative law can help save many family businesses affected by separation.

“The Collaborative law process is an extremely effective method of resolving disputes when there are large property settlements or family businesses involved.
“Whilst it is still relatively new in Australia, collaborative law is well-established in many overseas countries and recognised as a successful method of resolving disputes.  The key difference is that it focuses on party-to-party negotiation, and avoids the intervention of a court” said Warda.

Retaining Control

We have all heard stories of bitter marriage break-ups and acrimonious splits that have proven detrimental to business owners.

In the traditional court-based approach to divorce, when there is a dispute over a property settlement, the matter is referred to the Family Court to determine the allocation of assets.  This allows the Court to make decisions on the couple’s behalf with regard to a family business: does the business have to be sold, who buys out the other partner, what happens to the superannuation and so on.

In the collaborative process however, clients, their lawyers and other professionals work together to find a fair solution to whatever financial, business or child-related issues need to be addressed in the separation without involving the court.

After deciding to contract out of the court system, the couple sits down with their respective lawyers to discuss the issues then negotiate their own arrangements during face-to-face meetings.  The process allows both parties to have equal say and express their own needs or requirements, as well as keeping the needs of any children paramount.  If a particular issue is causing problems during the negotiations, an expert adviser can be called in to assist.  This adviser is usually an accountant, counselor, psychologist or children’s specialist.

According to Warda, the involvement of an independent expert can help shape the outcome of the negotiations.  “Having access to an expert who gives specialist advice can really make the difference when a couple reaches an impasse in their negotiation” she says. “The couple can ask questions, discuss options and look at the impact of various decisions, whether it’s about finances or contact arrangements for children.”

When an agreement has been reached on all of the issues, the outcome is recorded and encompassed in a legally binding and enforceable document.  This legal document can take the form of a Binding Financial Agreement outlining the division of property and assets (including any decisions made with respect to the family business), a Parenting Plan relating to the children of the marriage, or an Application for Consent Orders.  For business owners and operators, it is important to note that Stamp Duty exemptions and CGT rollover relief will then follow from either the Binding Financial Agreement or the Consent Orders.

Real People, Positive Outcomes

Warda is rapidly gaining expertise in the new field of collaborative law, with an increasing number of clients now choosing to use this approach.  She was happy to provide just two recent examples of how she has helped her clients to achieve the best possible outcome following separation.

In one instance, a couple had been married for twenty years.  During that time they had acquired a home, several investment properties and a successful business that employed both the husband and wife.  Given the length of their marriage and the assets accumulated it was a complex process to divide the property equitably.

During the collaborative process, the couple engaged the assistance of their family accountant to provide advice regarding issues such as company vehicles, income tax implications and the CGT consequences of various transactions.  An independent forensic accountant was also consulted to undertake a joint valuation of the business.

Decisions were made and a settlement negotiated quickly and effectively, without any impact on the business.  Because the couple managed to negotiate the settlement themselves it minimised the stress on both of them and ensured the ongoing success of their company.

According to Warda, the process can work equally well in shorter marriages when couples are keen to reach decisions quickly and move on with their lives.  She tells of one such situation when the husband had set-up a business in the early stages of a relationship and wanted to retain the business when a separation occurred not long after marriage.  Through the collaborative process, the couple was able to identify alternatives to selling the business while still ensuring a mutually satisfactory outcome.

Susan Warda is an Accredited Specialist in family law and heads the family law team at Coleman & Greig.  She is also a founding member of Western Sydney Collaborative Family Lawyers, a network of lawyers dedicated to providing an alternative to the court-based system of divorce.  Susan can be contacted on [email protected] or tel: 02 9635 6422

Author: Susan Warda, Principal Coleman & Greig