June 6, 2025
When marriages or de facto relationships break down, the division of assets can be a complex and stressful process. For business owners, there's an added layer of concern about how family law property settlements might affect their livelihood and commercial interests. Many Australian business owners worry that years of hard work could be compromised during relationship breakdowns. Working with an experienced family lawyer is often essential to navigate these challenging circumstances and protect what you've built.
Australian family law takes a holistic approach to property settlements. Business assets don't automatically receive special treatment or protection simply because they're commercial in nature. Instead, they form part of the overall property pool available for division.
Courts classify assets based on when they were acquired (before or during the relationship), how they were acquired (inheritance, gift, or joint effort), and the nature of each party's contribution. A business established before the relationship might receive different treatment than one built during the marriage, but neither is automatically excluded.
When valuing businesses, courts typically employ methods such as asset-based approaches, earnings multiples, or discounted cash flow analyses. Valuations often become contentious points, with disagreements about goodwill, risk factors, and future earning potential.
An often overlooked factor is the court's recognition of indirect contributions. A non-working spouse who cared for children while you built your business can claim they facilitated your business success, a position Australian courts often acknowledge.
The legal structure through which you operate your business significantly impacts its vulnerability in family law proceedings:
Sole traders and partnerships offer minimal protection as the business and its owner are legally inseparable. All business assets are directly available for division in settlements.
Companies provide some separation through limited liability, but company shares are still property that can be divided. Control can shift if shares are transferred to an ex-spouse, potentially affecting business operations.
Trusts, particularly discretionary trusts, can offer better protection as beneficiaries technically don't own the assets. However, courts increasingly look beyond legal structures to examine who controls and benefits from trust assets. A spouse who acts as appointor or trustee may find trust assets included in settlement considerations.
Self-managed superannuation funds can hold business assets, including business real property, with superannuation being treated differently in family law. However, superannuation interests themselves are still subject to splitting in family settlements.
Proactive legal planning offers the best protection for business assets. Several legal instruments can help:
Binding Financial Agreements (BFAs) act similarly to prenuptial agreements in other countries. When properly executed, they can specify how business assets will be treated upon relationship breakdown. For enforceability, both parties must receive independent legal advice, make full financial disclosure, and enter the agreement without duress.
"Prevention is always better than cure when it comes to protecting business assets in family law matters. Establishing clear agreements while relationships are harmonious provides the strongest foundation for asset protection." - Testart Family Lawyers
Shareholder agreements can include clauses restricting share transfers or establishing valuation methods in case of relationship breakdown. These provisions can prevent an ex-spouse from becoming an unwanted business partner.
Trust deeds should be carefully drafted with potential relationship breakdowns in mind. Provisions regarding appointor succession and beneficiary determinations can help maintain control of trust assets during family disputes.
Beyond legal structures, practical financial management can strengthen your position:
Proper documentation of who contributes what to the business can help establish that certain assets should remain with the contributing spouse. This includes keeping records of pre-relationship assets used to establish the business.
Insurance and buy-sell arrangements can provide liquidity to satisfy settlements without disrupting business operations. These arrangements can specify how business interests will be valued and transferred if a relationship breakdown occurs.
Certain actions raise red flags in family law proceedings and may backfire dramatically:
Attempting to hide assets or transfer them to third parties shortly before separation often leads to adverse findings. Courts have broad powers to set aside transactions intended to defeat a spouse's claim.
Poor record-keeping makes defending business asset claims difficult. Without clear documentation, courts may make assumptions unfavourable to the business owner.
Mixing personal and business finances creates an impression that the business is simply an extension of personal affairs, making it harder to argue for its protection.
Aggressive asset protection strategies implemented after relationship problems begin may be viewed as attempts to defeat just claims rather than legitimate business planning.
Australian case law provides valuable lessons on business asset protection. In Kennon v Kennon, the court included trust assets in the property pool despite the husband's argument that he didn't legally own them, as he maintained effective control as appointor.
In Hoffman v Hoffman, a business valuation became highly contested when the husband claimed COVID-19 had permanently reduced the company's worth, while the wife argued it was a temporary setback. The court accepted a valuation that averaged the pre-pandemic and current performance.
The Best v Best case demonstrated how a properly executed BFA can protect business assets, with the court upholding an agreement that kept the husband's pre-existing business interests separate from the property pool.
Effective asset protection requires a team approach:
Family lawyers with business expertise can advise on how the Family Law Act 1975 applies to your specific situation and help draft effective BFAs.
Commercial lawyers can establish appropriate business structures and draft shareholder agreements with family law protections.
Forensic accountants help value businesses accurately and can trace financial contributions, strengthening claims about separate property.
Financial advisers can develop strategies that balance business needs with personal asset protection, including insurance and liquidity planning.
Prepare now by gathering:
Company registration documents, shareholder registers and meeting minutes
Trust deeds, appointor documents and distribution records
Evidence of initial business funding and pre-relationship assets
Financial statements showing business performance over time
Consider updating your shareholder agreement, trust deed or company constitution to address relationship breakdown scenarios. Discuss a BFA with your spouse or partner while relations are positive, framing it as responsible business planning rather than lack of commitment.
While no strategy can completely insulate business assets from family law proceedings, proactive planning significantly improves protection. The earlier protective measures are implemented, the more likely they are to be effective. Transparent, well-documented arrangements established well before relationship issues arise offer the best chance of preserving your business legacy. Testart Family Lawyers recommends business owners seek specialist advice to develop a comprehensive protection strategy tailored to their specific business structure and personal circumstances.
No, they are not. Australian family law includes business assets in the overall property pool to be divided. The court will consider all contributions, both financial and non-financial, from both partners when deciding on a settlement.
Proactive planning is your best strategy. A Binding Financial Agreement (BFA), created with independent legal advice for both parties, is one of the strongest tools available. It allows you to agree on how business assets will be treated before any relationship issues arise.
It can be a significant factor, but it does not guarantee protection. The business will still be considered part of the property pool. The court will assess its growth during the relationship and how your partner's contributions, direct or indirect, supported that growth.
Yes, it is possible. Courts are increasingly looking past the legal structure of a trust to see who has effective control and who benefits from it. If you are found to control the trust, its assets may be included in the property settlement.
Your first step should be to get specialised advice. Consulting with professionals who understand both business and family law, like the team at Robin Waite Limited, can help you create a comprehensive strategy using tools like BFAs and properly structured agreements.
