Divorce and the business you built

The accountant rang me on a Wednesday morning. Background noise of his office, kettle, someone laughing two desks over. He said, "you understand the business will need to be valued". I said, "I know what it is worth, I know to the dollar". He paused. Then he said, very gently, "you know what it is worth to you. The court needs what it is worth to a stranger". I sat at my desk for an hour after that call, looking at the side of the building opposite, and recognised that I had been carrying a number in my head that had no legal weight.

If you have built a business, the divorce is not just emotional. It is operational. The thing you spent a decade growing is now an asset on a balance sheet that a court, or a mediator, or her lawyer, has the right to scrutinise. That changes how you run it during settlement. It changes what numbers matter. It changes who gets to ask what.

Most men I know in this position underestimate three things. The valuation process. The goodwill question. The cost of keeping going as if nothing has changed.

How a business gets valued in family law

There is no single method. The valuer (usually a forensic accountant agreed by both parties, or court-appointed) chooses the approach that fits the business. The three common methods in Australian family law matters are:

• Capitalisation of future maintainable earnings. Most common for established, profitable businesses with a track record. The valuer normalises recent earnings (removing one-offs and owner-related distortions), then applies a multiple based on risk and industry.
• Net asset value. Used for businesses where assets matter more than earnings. A property holding company. An equipment-heavy operation in a slow industry. Sometimes used as a sanity check on other methods.
• Discounted cash flow. Used for businesses with predictable long-run cash flows that differ from recent earnings. Less common, more contestable.

The valuer will want everything. Last five years of financial statements. Tax returns. Management accounts. Customer concentration data. Owner remuneration history. Related-party transactions. Lease agreements. Any related entities (trusts, holding companies, family arrangements). It is invasive. It is meant to be.

The number that comes out the other end is rarely the number you expected. It is rarely the number she expected either. Both parties usually feel slightly aggrieved, which is, perversely, a sign the valuer has done a competent job.

Two practical points.

If you can agree on a single jointly-instructed valuer, do it. Two valuers (one each) almost always produce different numbers and a more expensive process. A jointly-instructed valuer (a "single expert" in the rules) gives one report that both parties have agreed to abide by, subject to challenge.

If the business has had a bad year (or three), be honest about why. A valuer netting out a Covid year, or a one-off bad client, or a personal health issue, will produce a more accurate number than one who treats a depressed period as the new normal. You want accuracy more than you want optimism.

The goodwill question

This is the one men misunderstand most. In family law, the value of your business often includes a component called "goodwill". Goodwill is, roughly, the value of the business above its tangible assets and identifiable intangible assets. It is the bit that exists because of the brand, the customer relationships, the systems, the reputation, the going-concern nature of the operation.

Two flavours matter.

Personal goodwill. Tied to you specifically. If the business depends on you (you are the rainmaker, the relationship holder, the trade name is your face), some of the goodwill walks out the door if you leave. Family law treats personal goodwill cautiously. It exists, but it cannot be separated from the person.

Enterprise goodwill. Tied to the business itself, transferable to a new owner. Brand, systems, recurring revenue, established premises, trained staff. This is what a buyer would pay for if you sold tomorrow.

Why this matters in settlement. If most of your business value is personal goodwill, the asset is less liquid (you cannot sell it, or its sale value is much lower than its operating value). If most of it is enterprise goodwill, the business is genuinely transferable and its valuation is more robust.

Forensic valuers split these out. A thoughtful one will give you a range that reflects how much of the value depends on you continuing to run it. The court takes this into account when deciding what is just and equitable, particularly when balancing a business interest against more liquid assets like cash or property.

Does she get shares, or a payout?

In Australia, family law settlement is highly flexible about the form of property division. The court can order almost anything that is just and equitable, including:

• Transfer of shares from one party to the other.
• Sale of the business and division of proceeds.
• Retention by one party with an offsetting payment to the other.
• Payment over time (rare, because the court prefers clean breaks).

In practice, the most common outcome where one spouse runs the business is that the operating spouse retains the business and pays the other spouse out, with the payment funded by other assets (mortgage refinance, sale of investment property), borrowing, or, occasionally, instalments backed by security.

She rarely ends up with shares in your operating business unless she was already a working participant in it. The court is reluctant to impose ongoing co-ownership between separated spouses. It does not work, operationally, and it sets the parties up for further conflict. So even if her solicitor opens with "we want fifty percent of the company", the negotiation usually moves towards a buyout figure quickly.

The buyout figure is the contested point. It is the valuation, multiplied by her percentage entitlement to the overall property pool, adjusted for what other assets she is taking. If the business is valued at $1.2m, the pool entitlement is 45 percent for her, and she is taking the house ($600k of equity) and her super, the buyout might be $200k or zero, depending on how the rest of the assets balance.

Most settlements try to keep cash payments small, because cash is what the operating spouse usually does not have. Refinancing, selling investments, drawing on super (carefully, with advice), and structuring instalments are all common.

The trap of post-separation contributions

This is where men get burned. After separation, you keep running the business. You might double its value over two or three years. You believe, reasonably, that the growth is yours, because you did the work. The court does not entirely agree.

The principle in Australian family law is that contributions to the asset pool, including post-separation contributions, are weighed in the contributions assessment. Post-separation work is recognised. But the asset pool is generally valued as at the date of trial (or the date of agreement), not the date of separation. So if your business has grown from $1m to $2m between separation and settlement, the pool to be divided is $2m, not $1m.

The court then assesses what proportion of the post-separation growth is due to your work, market factors, prior groundwork, and so on. Significant post-separation effort by you, with no contribution from her, will be reflected in the contributions assessment, but rarely as a clean "you keep all the growth" outcome.

What this means strategically. If your business is in a high-growth phase and settlement is dragging, the longer you wait, the more there is to divide. The flip side is also true: a downturn before settlement means a smaller pool. This is why fast, well-advised settlement is often financially rational, even if emotionally you want to delay.

It also means do not pour your soul into doubling the business in the eighteen months between separation and settlement, expecting to keep all of it. You may grow the pool, then watch part of the growth go across the table.

Whether to keep operating

The honest answer is yes, almost always. Closing or pausing the business during settlement is rarely the right move. It destroys value, including her share of the value, and the court will not look kindly on it if it appears strategic.

But you should make some specific operational adjustments while settlement is live.

• Do not make significant capital decisions (new premises, large equipment purchases, acquisitions) without legal advice. Substantial post-separation transactions are scrutinised.
• Keep your records clean. Forensic valuers will see everything. Cash spending, related-party transactions, owner drawings, all of it.
• Do not pay yourself a wildly different salary from your historic average. A sudden drop looks like asset suppression. A sudden spike looks like profit extraction.
• Document what you do, week by week. If the business grows, you will want to be able to show the court the drivers were your post-separation effort.
• Do not transfer shares, change shareholdings, or restructure entities without legal advice. The court can unwind transactions that look like attempts to reduce the asset pool.

Run it normally. Run it cleanly. Run it like someone neutral is reading the books, because someone neutral will be.

Small business CGT and other Australian wrinkles

If business assets need to be sold or transferred as part of settlement, there are specific tax considerations.

Marriage breakdown rollover relief. Under the Income Tax Assessment Act, certain transfers of CGT assets between spouses pursuant to a court order or binding financial agreement can qualify for rollover relief, deferring the CGT liability. This is significant. Without it, a transfer of business shares from you to her could trigger an immediate CGT bill on a notional gain. With it, the gain is deferred until she eventually sells.

Small business CGT concessions. If the business meets the relevant tests (turnover threshold, active asset test, ownership periods), the concessions can substantially reduce CGT on a sale or restructure. The interaction with marriage breakdown is technical. Do not assume. Get a tax-aware family lawyer or a family-law-aware tax adviser. They are not the same animal, and you may need both.

GST. Transfers of business assets have GST implications. Going-concern relief may apply.

Stamp duty. State-based, varies widely. Some states have specific exemptions for transfers under family law orders. Others do not. Check your state.

If your settlement involves any business asset transfer, the tax structuring of the deal can be worth more than the negotiating margin. A well-structured settlement saves tax for both parties. A badly structured one creates a tax bill that comes out of someone's hide.

What I wish I had done sooner

Got the valuer in early. Before negotiation, before her side could anchor a number that suited them.

Separated my identity from the asset. The business was something I built, and it was also a thing I was now selling part of. Holding both truths at once was uncomfortable but necessary.

Asked the accountant the dumb questions. I had been a client for a decade. I still did not know what enterprise goodwill was, in plain English, until I asked.

Stopped running scenarios in my head and started running them on paper. The number in my head, every time, was higher than the number on paper. The paper was right.

VALUE the work. Value it accurately. Then negotiate.

Build it again, if you have to.