Divorce and your business

The business will need to be valued, and the value of the business will be included in the property pool. Each party’s entitlement to the business is determined following family law principles after the business has been valued.

Contrary to popular belief, divorce or separation does not automatically mean the other party is entitled to half of the business.

Business valuations

There are many valuation methods available to a valuer to consider, some more relevant to certain industries than others. Accordingly, a valuer will choose a method of valuing that is best for the particular business in question. The valuer will consider whether a business is ongoing or if it’s operating activities have stopped, whether the business’s earnings are stable or whether the business has any “goodwill”.

Book a time with us if you would like an indication of the value of your business. Upturn Accountants & Advisors are qualified to value a business and we are frequently engaged by clients and the courts to do so where parties are not in agreeance. Our business valuations and methodology is documented in a detailed report that is presented to the client at the end of the valuation.

How a business is divided in a divorce depends entirely on the business’s structure.

If the business is a sole trader, the business and its assets are subject to division just like any other personal asset.

For couples that have assets tied up in a company the division might involve the buying out of shares by one party who intends to continue the business.

It is very important that the tax consequences of assets held in the company and any settlements paid from the company are assessed. Settlements paid out by a company can sometimes be treated as taxable dividends and taxed at the relevant spouse’s marginal tax rate.

If you are receiving assets from company as part of a property settlement, it’s essential that you understand the tax implications prior to settlement or a sizeable portion of the settlement could go to the ATO. Other tips include:

• ensure you have accurate and detailed financial records of inome, expenses, assets to ensure a valuation can be arranged
• ensure your tax compliance is up to date
• consider alternative dispute resolution methods (if possible) to save on signficant legal costs – contact us if you would like more information
• obtain legal advice

For business owners, outside of the tax and financial issues, it’s important to not lose focus on what’s important to keep the business running efficiently.

A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement.

It’s important to be aware however that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.

A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession.

If you have an SMSF and both spouses are members, it’s important to get advice to make sure that all of the appropriate administrative issues are taken care of.

Where a divorce is not amicable, it’s important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage

In a divorce, assets are split based on a multitude of factors such as earning capacity, maintenance of children, and the assets held pre-marriage.

Many couples don’t go through their marriage with an equal view of how assets and income should be attributed until something goes wrong. If there is a disparity between the income levels of each spouse, there are a lot of benefits to the household in general of evening out how income flows through to the family.

If your partner earns less than you, there is a very real financial benefit to topping up their super as superannuation has preferential tax rates. The same goes for taxable income. If you can even out income coming into the household, it spreads the tax burden. Good planning can make a difference.