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

How Businesses Are Treated in Family Law

The Court's task under the Family Law Act 1975 (Cth) is to achieve a property settlement that is just and equitable between the parties. The four-step approach is well known: identify the pool, assess contributions, consider future needs and stand back to test the overall result. A business sits squarely within the property pool to the extent it has value attributable to a party.

How that value is brought into the pool depends on the structure. A sole-trader business is simply included at its net value. A company is included at the value of the shares held by a party. A partnership is included at the value of the party's partnership interest. A trust may be included as property where the party effectively controls it, or treated as a financial resource where their interest is more indirect.

What Types of Business Structures Are Common?

Most disputes involve one of the following structures:

• Sole trader — straightforward to value, but goodwill questions still arise.
• Partnerships — including husband-and-wife partnerships and professional partnerships, governed by a partnership agreement and the Partnership Act.
• Proprietary limited companies — often family-owned with two or three shareholders.
• Discretionary (family) trusts — frequently used to hold a trading business, investments or both, with a corporate trustee.
• Unit trusts and hybrid structures — common in joint-venture and professional practice arrangements.
• Self-managed superannuation funds — not strictly business structures but frequently entangled with the family company through related-party arrangements.

Business Valuation

Valuation is usually undertaken by a single expert appointed jointly. The valuer applies one or a combination of accepted methodologies:

• Capitalisation of future maintainable earnings — most common for mature operating businesses with stable earnings;
• Discounted cash flow — for businesses with projected growth, distinct project pipelines or volatile earnings;
• Net asset valuation — for asset-rich, earnings-poor entities or investment-holding structures;
• Rule-of-thumb industry multiples — used as a cross-check, particularly for professional practices.

Valuations are sensitive to add-backs (working out a normalised owner's salary), the capitalisation rate (risk premium) and the treatment of one-off items. Parties often disagree about these inputs, and reasonable minds can differ by margins of 20% or more.

Family Companies

In a typical family company, the shares are held by one or both parties (sometimes with adult children or related trusts). The Court's task is to determine the value of the party's shareholding, then decide how the value is to be realised — usually by one party retaining the shares with an offsetting payment to the other, less often by sale to a third party. Buy-sell mechanisms and shareholder agreements may be relevant; for the broader context see our article on buy-sell agreements.

Trust Structures

Discretionary trusts are the most heavily litigated business structures in family law. The Court will look at:

• who is the appointor and trustee;
• who has historically benefited from distributions;
• whether the controller has used trust assets personally;
• whether the trust was funded by the controller's own assets.

Where the trust is effectively the controller's alter ego, its assets are commonly brought into the property pool. Where the party's interest is more genuinely contingent — for example, one beneficiary among many in a long-established family trust — the trust may be treated as a financial resource that influences the assessment of future needs but does not add to the divisible pool.

Professional Practices

Professional practices raise distinctive valuation issues. Much of the value typically resides in personal goodwill — which cannot be sold without the practitioner — and in work-in-progress, retained earnings and the value of any associated service entity. Specialist valuers experienced in the relevant profession should be engaged. Restraint-of-trade arrangements built into partnership or service agreements also need to be considered.

Goodwill and Future Earnings

Goodwill is the difference between the value of a business as a going concern and the value of its tangible assets. It is driven by reputation, recurring clients, brand, location and key personnel. A persistent question is whether goodwill is commercial (transferable to a buyer) or personal (tied to the individual practitioner). Only commercial goodwill carries weight in valuation.

Future earnings, by contrast, are not normally added to the asset pool — they are considered under the future-needs limb of the four-step framework. The earning capacity of a party can significantly influence the percentage division of the pool.

Disclosure Requirements

The duty of full and frank disclosure is strict and ongoing. Business owners must produce:

• three to five years of financial statements and tax returns;
• up-to-date management accounts and BAS;
• shareholder agreements, trust deeds and partnership agreements;
• loan and security documents;
• customer and supplier contracts of material value;
• cap tables and share registers;
• details of related-party transactions.

Failure to disclose has serious consequences — including the re-opening of final orders, adjustment of the asset pool in favour of the other party, adverse costs orders and adverse inferences. The disclosure regime that applies to a complex business mirrors the regime that applies in cases involving cryptocurrency: courts are increasingly impatient with deliberate concealment.

Protecting a Business During Separation

A separation does not require the business to stop trading. Sensible steps include:

• continuing to operate the business in the ordinary course;
• avoiding major capital expenditure or restructuring without legal advice;
• maintaining clear records of every transaction;
• keeping personal and business banking strictly separate;
• preserving key employee and customer relationships;
• obtaining advice before issuing any redundancies or terminating service agreements with related parties.

For broader succession context, our article on business succession planning discusses the agreements and insurances that keep a business running through major personal events.

Common Mistakes Made by Business Owners

• Trying to depress the valuation by deferring revenue or accelerating expenses — easily identified by an experienced valuer.
• Restructuring during the separation in ways that can be unwound and that attract adverse inferences.
• Failing to disclose related-party loans, foreign assets or trust distributions.
• Treating the company bank account as a personal account, which makes it harder to argue that trust or company assets sit outside the pool.
• Negotiating without specialist advice and accepting a settlement that the business cannot fund.

When Specialist Advice Is Required

Most business-owner property matters benefit from a team approach: a family lawyer to manage the matter, an accountant to advise on financial structuring and tax, a valuer to provide independent evidence of value, and (where required) a commercial lawyer to deal with shareholder, partnership or trust issues. Our Family Law team works alongside our Commercial & Business Law team in matters involving substantial business interests.

Conclusion

Businesses are valued, divided and protected differently from ordinary household assets, and the choices made during separation can have a lasting effect on the business itself — its viability, its workforce and its capacity to generate future income for both parties. Business owners who obtain early specialist advice, comply with disclosure obligations and resist the temptation to manipulate the business position consistently achieve better outcomes than those who do not. For broader context, see our companion guides on whether property is always divided 50/50 and de facto property claims.

Frequently Asked Questions