My Ex Says the Business Is Worth Nothing. What Do I Do?
It is a statement we hear surprisingly often in family law property matters:
“The business isn’t worth anything.”
Sometimes that may be true.
But if your former partner operates a successful business, derives an income from it, employs staff, has established clients or has built it over many years, you do not necessarily have to accept their assessment of what it is worth.
In a family law property settlement, the question is not simply what your ex says the business is worth.
The question is: what is its actual value?
Is a business included in a family law property settlement?
Potentially, yes.
When determining a property settlement, the parties’ financial circumstances need to be identified. That can include interests in companies, partnerships, trusts and businesses.
This can become complicated very quickly.
A business might be operated through a company. There may be a family trust sitting behind it. Assets might be owned by one entity while income is generated through another.
That is why looking at the balance in the business bank account rarely tells the whole story.
How do you work out what a business is worth?
Where the value is disputed, an independent business valuation may be required.
Depending on the business, a valuer may consider matters including:
- historical and current earnings
- maintainable profits
- business assets and liabilities
- goodwill
- recurring clients or contracts
- intellectual property
- loans involving directors or related entities
- distributions through trusts
- the structure through which the business operates
- other financial benefits received by the business owner
The appropriate valuation methodology will depend on the nature of the business.
My ex’s accountant says the business is worth nothing. Is that enough?
Not necessarily.
An accountant who has historically acted for the business performs a very different role from an independent expert engaged to value the business for family law purposes.
If the value is genuinely disputed, it may be appropriate for the parties to jointly appoint an independent expert.
The expert can then obtain and consider relevant financial records and provide an independent opinion.
What if my ex won’t give me the business records?
That does not necessarily end the enquiry.
Family law imposes significant financial disclosure obligations.
Depending on the circumstances, disclosure may include company financial statements, tax returns, BAS documents, trust documents, bank statements, loan accounts and other records relevant to determining the parties’ financial circumstances.
If documents are not voluntarily produced, there are legal processes that may be available to obtain them.
In some cases, documents can also be sought from third parties such as accountants or financial institutions.
What if my ex suddenly says the business has stopped making money?
This requires careful investigation.
Businesses do fluctuate. A reduction in profitability does not automatically mean somebody is manipulating the figures.
But timing can matter.
If a previously profitable business suddenly appears to perform dramatically worse immediately before or after separation, the financial records may need closer examination.
That might include looking at changes in revenue, expenses, director wages, payments to related parties, loans, retained earnings, unusual expenditure and the movement of money between related entities.
The aim is not to assume wrongdoing. It is to understand what the numbers actually show.
What if I never worked in the business?
That does not automatically mean the business is irrelevant to your property settlement.
Family law property matters do not simply ask whose name appears on an asset.
The circumstances of the relationship, the parties’ contributions and their current and future circumstances all need to be considered.
One person may have spent years building a business while the other made significant contributions in other ways, including caring for children and managing the household.
Every case is different.
Do I need a forensic accountant?
Not in every case.
For some small businesses, the financial position may be relatively straightforward.
For more complex businesses, companies or trust structures, expert accounting evidence can be extremely valuable.
The cost of obtaining a valuation also needs to be proportionate to the value of the business and the overall property pool.
The important thing: don’t guess
If your former partner says the business is worth nothing, you do not need to immediately accept that figure.
But you also should not simply invent a competing number.
Get the documents. Understand the structure. Obtain an independent valuation where appropriate.
The evidence should determine the value.
Melmark Law assists clients in complex family law property matters involving businesses, companies, trusts and disputed valuations.
If a business is likely to be a significant part of your property settlement, obtaining advice early can help identify what information is required and what steps should be taken to protect your position.