Business Interests and Divorce: How Businesses Are Treated in Property Settlements

A privately owned business is often the most valuable thing a separating couple has, and almost always the hardest to deal with. It is illiquid, it usually carries debt, it may have co-owners who are strangers to the relationship, and it is generating the income both households now need. A settlement that ignores any of those features tends to fail in implementation rather than in principle.

This article is the overview. It explains what the court is actually doing when a business is in the picture: identifying interests and liabilities, characterising what sits inside and outside the reach of the power, working out value on evidence, and then choosing an outcome that can be performed. The detailed mechanics of valuation, of trust analysis and of retaining a business are dealt with in the specialist guides linked at each point, and are not repeated here.

The Statutory Framework

For married couples the power is in section 79 of the Family Law Act 1975 (Cth); for de facto relationships the corresponding power is in section 90SM. Both were restructured by the Family Law Amendment Act 2024 (Cth), with the property amendments commencing on 10 June 2025. The current statutory sequence for a married couple is worth reading closely, because business cases are usually decided at the first step rather than the last.

• Section 79(2) — the court must not make an order unless satisfied that, in all the circumstances, it is just and equitable to make the order.
• Section 79(3)(a) — the court is to identify the existing legal and equitable rights and interests in any property of the parties or either of them, and their existing liabilities.
• Section 79(3)(b) — the court is to take into account the contribution considerations in section 79(4) and the current and future circumstances considerations in section 79(5).

The familiar structured approach — identify, assess contributions, consider current and future circumstances, and stand back to test the result — is explained in our guide to the property settlement process. What matters here is that the identification step does the heavy lifting when a business is involved, because the answer to “what is the property?” depends on how the business is held.

The Business Is Not the Property

It is common, and imprecise, to say that “the business is in the pool”. A business is an economic activity. What the court identifies is the legal and equitable interest a party holds in the entity or assets through which that activity is conducted, together with the liabilities attaching to it. The distinction is not academic. It determines whose property is being altered, whether other people’s rights are engaged, what can be transferred, and what the transfer costs.

Three consequences follow for practical purposes. First, the value in question is the value of the interest, net of debt and of the rights of others, not the enterprise value of the business as a whole. Second, where an entity holds the assets, the court is generally altering interests in the entity, not distributing the entity’s assets, unless the conditions for a third-party order are met. Third, where the business is conducted by a party personally, as a sole trader, there is no separate entity at all: the assets, the liabilities, the contracts and the licences are that person’s own, and the analysis is comparatively direct.

Structure by Structure

The following outlines what is ordinarily identified in each common structure. In every case the constituent documents control the detail, and they should be read before any position is taken.

• Sole trader. No separate legal entity. The assets, goodwill, plant, stock, receivables, liabilities and any personal licence sit with the individual. Value is the net value of the enterprise in that person’s hands.
• Partnership. What the party holds is a partnership interest: a right to a share of profits and of surplus on dissolution, subject to the partnership agreement and the applicable Partnership Act. Separation between two spouses who are also partners raises a parallel commercial question, because the partnership relationship may itself require dissolution or variation.
• Proprietary company. The property is the shares held, subject to the constitution and any shareholders agreement. Pre-emptive rights, transfer restrictions, share classes, unpaid capital, dividend history and shareholder loan accounts all matter. A loan account can be an asset of the party or a liability owed to the company, and it is regularly overlooked.
• Unit trust. Units are ordinarily proprietary interests and are usually treated as property of the unitholder, subject to the deed. Unit trusts often appear in joint ventures and professional structures where unrelated parties hold units.
• Discretionary (family) trust. A discretionary object has no proprietary interest in the trust fund. The characterisation question is dealt with separately below.
• Service and operating entity splits. Many professional and trade businesses separate the operating entity from the entity holding plant, real property, intellectual property or staff. The value can sit in either, and both need to be identified.
• Self-managed superannuation funds. Not a business structure, but frequently entangled with the family company through related-party leases, loans and limited recourse borrowing. Superannuation is dealt with under the superannuation splitting regime rather than as ordinary property; see our guide to superannuation splitting.

Professional practices deserve a separate note. Much of the value of a medical, legal, accounting or allied health practice may reside in the practitioner rather than in anything transferable, and the practice may be constrained by registration requirements, restraints, service agreements and referral relationships. Work in progress, retained earnings, trust and controlled money accounts, and the treatment of partner drawings all require care.

Trusts: Property or Financial Resource

Discretionary trusts generate more argument than any other structure. The starting position at general law is that an object of a discretionary trust has no proprietary interest in the trust fund; what the object has is a right to due administration. That is why the analysis is fact-specific rather than formulaic.

In Kennon v Spry (2008) 238 CLR 366 the High Court did not hold that a trust controlled by a party is that party’s property. The result depended on the particular combination of rights, powers and dealings before the court, including the terms of the deed, who held the trustee, appointor and variation powers, the position of the beneficiaries, the history of distributions and the statutory context in which the question arose. Depending on the evidence, a trust connection may be characterised as property of a party, or as a financial resource relevant to the current and future circumstances considerations in section 79(5), or as neither.

Three points are worth holding onto. Control is evidence, not a conclusion. Third-party interests — other beneficiaries, co-trustees, financiers and creditors — are real and must be accorded procedural fairness before any order touches them. And the label the parties use in negotiation has no effect: what matters is the deed, the dealings and the evidence. The detailed treatment is in our guide to family trusts in property settlements.

Third Parties and Part VIIIAA

Business cases routinely require something to be done by a person who is not a party to the marriage: a company registering a transfer, a bank substituting a borrower, a trustee acting on a direction. Part VIIIAA of the Act deals with this in proceedings under section 79.

• Section 90AE(1) lists specific orders, including orders directed to a creditor to substitute one party for both, or both for one, or to change the proportions in which the parties are liable, and orders directed to a company or to a director of a company to register a transfer of shares from one party to the other.
• Section 90AE(2) extends to any other order directing a third party to do a thing in relation to the property of a party, or altering the rights, liabilities or property interests of a third party in relation to the marriage.
• Section 90AE(3) imposes preconditions: the order must be reasonably necessary, or reasonably appropriate and adapted, to effect a division of property; where a debt is concerned it must not be foreseeable that the order would result in the debt not being paid in full; the third party must be accorded procedural fairness; the court must be satisfied that it is just and equitable to make the order; and the matters in section 90AE(4) must be taken into account.
• Section 90AE(4) requires attention to taxation effects on the parties and on the third party, social security effects, the third party’s administrative costs, the capacity of a party to repay a debt, the economic, legal or other capacity of the third party to comply, and any matters the third party raises.

Section 90AF makes corresponding provision for orders and injunctions under section 114, and section 90TA extends Part VIIIAA to de facto proceedings under section 90SM with the modifications set out in that section. Third parties may also need to be notified of an application: the Rules of Court govern when notice is required, under section 79F for married couples and section 90SO for de facto relationships. The practical lesson is that orders affecting a lender, a co-owner or a corporate trustee cannot simply be drafted and lodged; the third-party position has to be built into the evidence and, very often, negotiated.

Valuation in Outline

Value in a property settlement is a question of evidence. Expert valuation evidence is usually obtained from an accountant with valuation credentials, engaged as a single expert under the expert-evidence provisions of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021. Single-expert appointment is the ordinary course, not an invariable requirement: separate reports are sometimes permitted, and a proportionate scope may be appropriate in a small matter.

The recognised approaches are familiar: capitalisation of future maintainable earnings for a mature business with reasonably stable results; discounted cash flow where the value depends on projected performance; a net asset approach for asset-rich, earnings-poor or investment-holding entities; and industry multiples as a cross-check rather than a conclusion. Results are highly sensitive to the inputs: normalisation of owner remuneration and related-party dealings, treatment of one-off items, working capital, capital expenditure requirements, the capitalisation rate or discount rate adopted, and any discounts for lack of control or marketability.

That is deliberately a summary. The mechanics — fair market value against value to the owner, add-backs, multiples, surplus and deficient assets, minority and marketability discounts, latent tax and the single-expert process — are set out in our specialist guide to business valuation in family law proceedings, and the broader question of how competing valuations are handled is dealt with in our guide to asset valuations.

Goodwill and Personal Earning Capacity

Goodwill is often the largest and least tangible component of a business value. In FCT v Murry (1998) 193 CLR 605 the High Court described goodwill as a composite concept: the attractive force that brings in custom. It is legally inseparable from the conduct of the business and is not a separate asset that can be dealt with on its own.

The question that matters in family law is whether the attractive force belongs to the enterprise or to the person. Enterprise goodwill — brand, location, systems, recurring contracts, a transferable client base, a trained workforce — can usually be sold with the business and may be reflected in the value of the interest being identified. Personal skill, reputation and relationships are not a transferable asset of the business, and treating them as one produces a value the business could never realise.

Personal earning capacity is not thereby irrelevant. Section 79(4)(d) requires the court to take into account the effect of any proposed order on the earning capacity of either party, and section 79(5)(c) requires attention to the income, property and financial resources of each party and their capacity for appropriate gainful employment. Earning capacity is weighed there. It is not capitalised and added to the value of the business.

Disclosure and Business Records

Section 71B, inserted as part of the 2024 amendments, states the duty of disclosure in the Act itself. Each party to a proceeding relating to financial or property matters must give the court and each other party full and frank disclosure, in a timely manner, of all information and documents relevant to the issues in the proceeding, and the duty applies from the start of the proceeding and continues until it is finalised. Section 71B(5) imposes an equivalent duty on separated parties who are preparing for a proceeding. Section 90RI is the de facto equivalent.

In a business matter the documents ordinarily required include:

• financial statements, income tax returns and business activity statements for the entities in which the party has an interest;
• management accounts, general ledgers, aged receivables and payables, and loan account reconciliations;
• constituent documents: constitutions, shareholders and partnership agreements, unit trust and discretionary trust deeds and every variation, and records of appointor and trustee changes;
• distribution and dividend records, minutes and resolutions, and franking account details;
• banking, finance, guarantee and security documents, including personal guarantees and any registered security interests;
• material customer, supplier, lease, licence and employment arrangements, and any restraint or buy-sell provisions;
• related-party transactions, including leases and loans involving a self-managed superannuation fund or a family trust.

There is no fixed number of years. The relevant period is set by relevance, the Rules and any orders made, and it will be longer where there is a restructure, an unexplained change in results, or a dispute about post-separation contributions or dealings.

The consequences of default are set out in the note to section 71B(2): the failure may be taken into account in making an order under section 79, costs or security for costs orders may be made, disclosure orders may be made, sanctions may be imposed under section 112AD where an order is contravened, contempt powers exist under section 112AP, and proceedings may be stayed or dismissed in whole or part. Non-disclosure that produces a miscarriage of justice may also support setting aside final orders under section 79A. The regulatory tolerance for concealment is low, in business cases as in matters involving cryptocurrency, and the detail of how concealment is investigated is dealt with in our guide to financial disclosure and hidden assets.

Family Violence, Economic Abuse and Wastage

The 2024 amendments made the effect of family violence an express consideration on both limbs of the section 79 exercise. Section 79(4)(ca) requires the court to take into account the effect of any family violence to which one party has subjected or exposed the other on that party’s ability to make contributions of the kinds described in section 79(4)(a) to (c). Section 79(5)(a) requires the court to take into account the effect of that violence on the other party’s current and future circumstances, including on the other matters listed in section 79(5).

Business structures are a common vehicle for economic and financial abuse: excluding a party from the entity that holds the family’s wealth, removing them as a director or employee, cutting off distributions, running personal expenses through the business while denying access to information, or loading a party with guarantees and liabilities they cannot control. Where those facts exist they belong in the evidence.

Section 79(5)(d) separately requires the court to take into account the effect of any material wastage, caused intentionally or recklessly by a party, of property or financial resources. Deliberately running a business down, diverting income, creating artificial debts or gambling business funds falls within it. Section 79(5)(e) directs attention to liabilities and the circumstances in which they were incurred, which is where undocumented related-party borrowings are usually tested.

Preserving Value During the Dispute

Nothing about a separation requires trading to stop, and the operating spouse remains subject to their duties as a director, trustee or partner. Sensible discipline while the matter is on foot includes continuing to operate in the ordinary course, maintaining complete records, keeping personal and business banking separate, servicing debt, preserving key employee and customer relationships, and taking advice before anything material or irreversible is done.

The court has substantial protective powers when they are needed. Injunctions are available under section 114, including in relation to property and the conduct of a business, and section 90SS makes corresponding provision for de facto relationships. Section 106B allows the court to set aside or restrain the making of an instrument or disposition made or proposed to defeat an existing or anticipated order. Interim orders, including partial property orders, may be available on the appropriate evidence, as explained in our guide to interim property settlements. Where a party has actively concealed or dissipated assets, freezing orders may be sought.

Post-separation dealings cut both ways. Growth generated by the operating spouse after separation, and losses caused by recklessness or by market conditions, are dealt with on the evidence; our guide to post-separation contributions and value changes covers that ground.

Tax, Duty and the Cost of Implementation

Tax and duty are not an afterthought in a business settlement. They determine what a party actually receives, and they are routinely the difference between a workable order and one that cannot be performed. Specific accounting and revenue advice should be obtained before orders are signed, not afterwards.

• Latent capital gains tax. Where a party retains an interest at an agreed value, that value may embed an unrealised gain. Following Rosati and Rosati (1998) FLC 92-804, whether an allowance is made depends on the evidence, including the likelihood of a sale in the reasonably foreseeable future and the circumstances in which the asset was acquired and is to be retained. There is no automatic deduction.
• Relationship-breakdown rollover. Subdivision 126-A of the Income Tax Assessment Act 1997 (Cth) provides a same-asset rollover where the CGT event happens because of a qualifying court order under the Family Law Act or a corresponding law, an arbitral award, or a binding financial agreement or Part VIIIAB financial agreement, among the listed triggers. Informal arrangements do not qualify. Where the rollover applies it is compulsory, not optional, and the cost base passes to the transferee. Section 126-15 deals with transfers by a company or trustee, and the conditions are strictly applied, as the litigation in Ellison v Sandini Pty Ltd [2018] FCAFC 44 illustrates.
• Company payments and Division 7A. Payments of money or transfers of property by a private company to a party who is a shareholder or an associate can be assessable as a dividend, or as a deemed dividend under Division 7A of Part III of the Income Tax Assessment Act 1936 (Cth). Loan accounts, debt forgiveness and unpaid present entitlements all need to be identified and dealt with expressly. The Commissioner’s view is set out in Taxation Ruling TR 2014/5, which the ATO records as under review following the Sandini litigation, so current advice is essential.
• Victorian duty. Section 44 of the Duties Act 2000 (Vic) exempts certain transfers of dutiable property made because of the breakdown of a marriage or domestic relationship, on its own conditions, with separate requirements where the transferor is a corporation. Landholder duty under Chapter 3 of the same Act can apply to significant acquisitions of interests in land-holding companies and unit trusts. The exemption is not a general amnesty for transactions occurring around a separation.
• Other implementation costs. Break costs on refinancing, lender consent requirements, guarantee releases, trustee and appointor changes, GST on transfers of assets or of a going concern, and the practical cost of separating a shared premises, system or workforce all belong in the arithmetic. Our guide to tax and CGT in property settlements deals with the revenue detail.

How Business Cases Are Actually Resolved

Only a small proportion of business matters are decided at trial. The realistic outcomes are limited, and choosing between them is an exercise in funding and risk rather than principle.

1. Retention with an offset. One party keeps the interest and the other receives a greater share of the remaining property, including real estate and, where the superannuation regime permits, a split. This is the most common outcome where there are sufficient other assets.
2. Retention funded by borrowing. The retaining party refinances or borrows against the business or other security. Lender consent, serviceability and any guarantee position have to be tested before the order is made, not after.
3. Staged payments with security. Payment over time, secured by a mortgage, charge, guarantee or share pledge, with clear default consequences. Useful where the business can generate the funds but cannot produce them at once; the risk sits with the receiving party and should be priced.
4. Division of interests. Rarely satisfactory where the parties must continue to work together, but sometimes appropriate for passive investment entities or where a genuine separation of divisions is possible.
5. Sale. To a third party, a co-owner or through a buy-sell mechanism. It crystallises value and tax, and it takes time; a forced sale in a thin market is usually the worst commercial result available.

Whichever route is chosen, the orders have to be drafted so they can actually be performed: identifying the entity and the parcel, dealing with loan accounts and guarantees, providing for consents, allocating the tax and duty, fixing time limits and providing a mechanism if a step fails. How the operating spouse keeps control and funds the outcome is dealt with in our guide to keeping a business after separation, and the formal routes to finalising an agreement are covered in our guides to consent orders and binding financial agreements.

Common Mistakes by Business Owners

• Managing the numbers. Deferring revenue, accelerating expenses, writing off recoverable debts or paying unusual bonuses in the year of separation. Experienced valuers normalise for exactly this, and the attempt damages credit on every other issue.
• Restructuring mid-dispute. Changing trustees or appointors, issuing shares, transferring assets or moving a business to a new entity without advice. Section 106B and section 114 exist for this, and the costs of unwinding fall on the party who acted.
• Ignoring the loan account. Shareholder and beneficiary loan accounts, unpaid present entitlements and director drawings are frequently the largest single item in dispute and the most commonly omitted from a proposal.
• Treating the company as a personal account. Personal expenditure through the entity undermines any argument that entity assets sit outside the reach of the power, and it complicates the valuation.
• Forgetting the third parties. Agreeing to transfer shares that are subject to pre-emptive rights, or to release a guarantee the lender will not release, produces orders that cannot be performed.
• Agreeing a number the business cannot fund. A settlement that requires distributions the business cannot sustain will simply become an enforcement dispute.
• Leaving tax to the end. Rollover availability, Division 7A, duty and GST change the real value of an outcome and need to be modelled during negotiation.

How We Can Help

Business matters are ordinarily run by a small team: a family lawyer to conduct the matter, an accountant to advise on tax and structure, an independent valuer to provide evidence of value, and a commercial lawyer where shareholder, partnership, trust or financing issues need to be resolved. Our Family Law team works with our Commercial & Business Law team on matters involving substantial business interests, from early preservation and disclosure through to drafting orders that can be implemented.

Related Reading

• Business valuation in family law proceedings — methodologies, inputs, discounts and the single-expert process.
• Family trusts in property settlements — control, characterisation and third-party interests.
• Keeping your business after separation — funding, continuity and staged payments.
• Financial disclosure and hidden assets — how concealment is investigated and remedied.
• Tax and CGT in property settlements — rollovers, duty and implementation costs.
• Property settlement after separation — the overall process from separation to final orders.

Official Sources

• Family Law Act 1975 (Cth) — current compilation — including sections 71B, 79, 79A, 79F, 90AE, 90AF, 90RI, 90SM, 90SO, 90SS, 90TA, 106B, 112AD, 112AP and 114.
• Family Law Amendment Act 2024 (Cth) — the property and family violence amendments commencing 10 June 2025.
• Federal Circuit and Family Court of Australia — 2024 family law changes.
• Federal Circuit and Family Court of Australia (Family Law) Rules 2021 — disclosure and expert-evidence provisions.
• Australian Taxation Office — when the relationship breakdown rollover applies and section 126-5 of the Income Tax Assessment Act 1997.
• Taxation Ruling TR 2014/5 — payments and transfers by a private company in matrimonial property proceedings; recorded by the ATO as under review.
• Australian Taxation Office — private company benefits (Division 7A).
• Duties Act 2000 (Vic) and State Revenue Office Victoria — breakdown of marriage and domestic relationships.

Frequently Asked Questions