Tips to achieve greater protection for your business over the long term
Tips for protecting your business and family
- Have a comprehensive and fair contracting out agreement. Before or during a relationship spouses can make an agreement about how their property will be divided on separation or death to contract out of the PRA. A contracting out agreement can specify that your business is separate property and not to be divided. Each party requires independent legal advice. We regularly negotiate these agreements for clients in a sensitive and collaborative manner.
- Keep the business property and relationship property separate. If you owned a business prior to a relationship and it is mixed with relationship property, it may be considered relationship property. Pay yourself a competitive wage to prevent a successful argument that you have contributed a portion of your income, which is relationship property, to the business.
- Avoid having your spouse work in the business, or if they do, pay them a competitive wage. If your spouse has made financial or non-financial contributions to the business, they can claim a relationship property interest in it.
- Consider a well-designed trust. Trusts can provide increased protection from spousal claims in many situations. In our article, “Is my business safe from relationship property claims?” we discuss recent case law which highlights the need for trusts to be individually tailored, carefully administered and established well prior to a relationship where possible. Seek legal advice before settling a business on trust.
- Consider a shareholders’ agreement. If you have business partners, a shareholders’ agreement will increase certainty over what will happen if one of the owner’s changes, including in a relationship breakdown. It may provide that each owner will have a satisfactory contracting out agreement with their spouse. Tips to prepare for possible separation in the near future
- Seek legal advice at an early stage. Advice about the realistic range of outcomes and the processes available to work through a financial settlement will better position you to discuss settlement with your spouse if appropriate.
- Get your financial records in order. Armed with a detailed understanding of your business and its finances, your lawyers can get you the best settlement. If a business needs to be valued, we work with forensic accountants who specialize in your industry to ensure the numbers are “real world”, not speculative.
- Seek agreement about immediate financial concerns. These may include who will stay in the family home and who will pay the mortgage. If you are providing financial support, don’t leave interim arrangements in place too long. You have 12 months from the dissolution of marriage or three years from the date of separation (for de facto couples) to apply for orders under the PRA.
- Consider freezing joint bank accounts and stopping credit cards. It is important to conserve the asset pool and limit the debt in your name.
- Consider lodging notices of claim over properties held by your spouse. If your spouse owns real estate, you may be eligible to lodge a notice over the title to prevent the property being sold without your consent.