In Short
- Asset Division: After a de facto separation, any new business you start may be considered a shared asset, potentially subject to division.
- Financial Agreements: Creating a Binding Financial Agreement (BFA) can help protect your business interests by clearly outlining asset distribution in case of separation.
- Legal Advice: It’s crucial to seek legal guidance to understand your rights and obligations when starting a new business post-separation.
Tips for Businesses
Starting a new business after a de facto separation requires careful planning. Ensure you have a Binding Financial Agreement in place to protect your assets. Always seek professional legal advice to navigate the complexities of asset division and to safeguard your business interests.
Starting a new business after a de facto separation requires careful planning and consideration of various legal aspects. It’s important that when you begin the process of starting a business under a change of personal circumstances, you can establish a solid foundation for your new venture. This is crucial when navigating the legal landscape as it will ensure you protect your interests and comply with Australian corporate and business structuring laws. This article outlines key considerations for entrepreneurs in these unique situations.
What is a de-facto relationship?
A de facto relationship in Australia refers to a couple living together on a genuine domestic basis without being married. This type of relationship carries significant legal implications, particularly in the event of separation.
Under the Family Law Act, de facto couples have similar entitlements to married couples upon separation. In long-term de facto relationships, assets brought into the relationship by either party may be included in the property pool if the couple separates.
Therefore, when setting up a business, it is important to structure it correctly to separate the business assets from the property owned in the relationship.
Key Considerations
When starting a new business after a de facto separation in Australia, there are several legal considerations to keep in mind regarding corporate and business structuring. Here are some key points to consider:
- asset protection;
- separation of assets;
- business ownership;
- tax implications;
- intellectual property;
- financial disclosure; and
- contractual obligations.
1. Business Structure
Choosing the right business structure is paramount. Options such as setting up a company or trust can offer significant protection for personal assets against business liabilities. This separation is particularly important following a de facto relationship breakdown, as it helps maintain clear boundaries between personal and business finances.
It is vital to recognise that each structure has its own protection mechanisms for protecting personal assets and business liabilities.
Many businesses are operated through an entity (such as a company or a trust). This structure is beneficial as:
- it allows for a separation of personal assets and the assets and liabilities of the business;
- companies typically have more formal financial records, making it easier to determine the value of the business for property settlement purposes;
- if there are shareholders outside the divorcing couple, a company structure helps protect their interests during the divorce process; and
- company structures facilitate easier succession planning, which can be particularly relevant if children are involved in the business.
2. Separation of Assets
It’s vital to establish a clear distinction between the new business and any jointly owned assets or businesses from the previous relationship. This separation can prevent complications in future property settlements and protect the integrity of the new venture.
When starting your own business, you may want to consider entering into a financial agreement with your de-facto partner. This agreement will be binding on both parties and will assist with determining.
Overall this can potentially simplify asset division.
3. Financial Disclosure
Be prepared for the possibility of disclosing financial information about your new business if property settlement proceedings are initiated. The business may be considered a financial resource, impacting the overall settlement. This is because one of the first steps in the settlement process involves both partners being legally made to disclose all of their financial information. This is what is referred to as ‘financial disclosure’.
Moreover, this process generally involves providing a full and frank disclosure of any of the assets you own and considering any contributions. This also includes business interests.
Whether or not one or both parties have business interests will need to be undertaken. However, as most new businesses are worth very little and may, in fact, be more of a liability in their early stage, this may not be a high risk.
4. Income
Cash flow is an issue for almost every business owner. Regardless, business income can be difficult to deal with during a separation, especially when an owner’s income is tied to the profitability of their business.
Businesses in the start-up phase will typically have patchy and unpredictable revenue. As such, their owners will often not pay themselves from the business or only pay themselves the bare minimum amount, at least until the business gets off its feet. Therefore, paying child support or spousal maintenance can be difficult to work out.
Understand that converting your actual income during a Family Law dispute can be tempting. However, the duty of full and frank disclosure is imposed throughout the Family Law process, and there can be serious consequences for hiding your true financial position.
5. Tax implications
Different business structures come with varying tax consequences. Consulting with a tax professional can help determine the most advantageous structure for your situation, potentially saving significant amounts in the long run.
6. Intellectual Property
If you bring any intellectual property from a previous joint business, ensure proper documentation and transfer of ownership. This step is crucial to avoid future disputes and protect your business assets.
7. Contractual obligations
Review any existing contracts from your de facto relationship to ensure you’re not breaching any agreements by starting a new business. This step can prevent potential legal issues down the line.
The LegalVision Startup Manual provides guidance on a number of common challenges faced by startup founders including structuring, raising capital, building a team, dealing with customers and suppliers, and protecting intellectual property.
The guide includes 10 case studies featuring Australia’s top VC fund partners and leading Australian startups.
Key Takeaways
After a de facto separation, embarking on a new business venture presents unique challenges and opportunities. The legal landscape surrounding de facto relationships in Australia has evolved significantly, affording partners similar rights and protections to those in marriages. Therefore, this makes it crucial to approach your new business endeavour with careful consideration and planning.
While starting a new business can be an exciting and empowering step after a de facto separation, it’s not without its complexities. The intersection of family law and business law requires careful navigation. As such, seeking professional legal and financial advice tailored to your specific circumstances is not just recommended – it’s essential.
If you have any further questions, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Do I need to tell my ex about my new business?
Yes, if you’re going through a property settlement, you must disclose your new business as part of financial disclosure.
How can I keep my business separate from personal assets?
Set up your business as a company or trust to create a clear divide between personal and business finances.
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