Can I Sell My Business Before Divorcing My Spouse?

If you're reading this, then you have my condolences. You're no doubt going through a stressful time in your life.  Divorce can be very a difficult and stressful process.  The decision to sell a business before the dissolution of a marriage can add additional layers of complexity.  With the right legal, financial and emotional support however, it is possible to successfully navigate the sale of a business before divorce.

A Common Trend

According to the Australian Bureau of Statistics, over half (56%) of Australian adults are married or partnered. Approx 29% have never been married, and 9% of Australian adults are divorced.  The Baby Boomer generation are the most likely to be married (64%) with a divorce rate of only 16%.

Source: Australian Bureau of Statistics,

Legal Considerations

During divorce proceedings, a court will typically divide assets between the two parties in a fair and equitable manner. This includes any businesses that are considered as 'marital property'. A business may be viewed as 'marital property' if both of the spouses worked in the business or if one spouse enabled and supported the other to work on the business.  For example, if a wife stayed home to care for children while the husband grew the business, a court may view the business as 'marital property'.  

NOTE: This article should not be understood as legal advice. We always recommend seeking tailored and personal legal advice.

A solicitor can ensure that the sale of a business is properly structured to protect the interests of both parties. This may include the inclusion of a prenuptial or postnuptial agreement - addressing the ownership of the business in the event of a divorce.

The sale of a business before divorce can have a significant impact on the distribution of assets and should be carefully considered with the help of a lawyer.

A pending divorce can also impact the sale of a business. Potential buyers may be hesitant to purchase a business that is tied up in a divorce proceeding and for which the sale process may take longer.

NOTE:
Do not rush into a business sale quickly, thinking that if you can sell the business before a divorce you'll be able to avoid sharing the profits with your spouse. It is always best to seek legal advice and proceed carefully and methodically through the sale process.

Here are some legal considerations to keep in mind:

• Family law in Australia requires each party to disclose all of their assets, liabilities and financial interests during divorce proceedings. Selling a business must be transparently disclosed to avoid accusations of hiding assets.
  
  
• Proceeds from the sale will typically be included in a "matrimonial asset pool". It might be strategic to retain or sell depending on how it aligns with your desired settlement outcome.
  
  
• If a pre-nuptial or binding financial agreement exists, review its terms regarding business assets.
  
  
• If the business sale significantly alters the value of the asset pool, it may complicate property settlements. It's critical to get one or multiple current and independent valuations of the business.  Remember that a business valuation is not the same as an appraisal. Consider how the valuation may change in the future to decide on ideal timing.
  
  
• Selling the business does not absolve you of future financial claims. Even if the business no longer exists, the proceeds from the sale could still be divided as part of the settlement.
  
  
• Seek advice from a tax specialist regarding how to minimize tax implications related to the sale.
  
  
• Consider whether you should sell your business with the help of a business broker or by yourself. Also consider if you should sell the business to a family member or to an independent third party.
  
  
• In the case of joint ownership or director/shareholder approvals, check if your spouse's consent is legally required for the sale.
  
  
• Review the business' legal structure (sole trader, , partnership, trust etc) to identify any specific restrictions or rights.
  
  
• Consult a family lawyer and business lawyer to ensure the sale is structured to protect your interests.  If there are debts, warranties or ongoing liabilities tied to the business ensure these are factored in.
  

Financial Considerations

Divorce can have a significant impact on the value of a business. In some cases, the pending divorce may cause a decrease in the value of the business due to the uncertainty surrounding the ownership and management of the company.  How will the divorce impact staff morale and client relationships?  Divorce may introduce a heightened level of 'key man risk' to the deal for a buyer.  Put yourself in the buyer's shoes. Would you want to purchase a business with these additional layers of uncertainty?

It's important to consult with a financial advisor or a business broker to understand the financial implications of selling a business before divorce and to help maximize the value of the business. Read more about Selling A Business With And Without A Broker

There are several strategies that can be used to maximize the value of a business before a sale. This may include increasing revenue, cost-cutting, streamlining, documenting processes/procedures  and improving the overall financial health of the business.  Put to bed any un-addressed issues resulting from the divorce.  Ensure that staff morale is high and that you won't loose any clients or contracts due to 'side taking' over the divorce.  Before taking the business to market, it would be beneficial to resolve any outstanding items from a divorce to ensure the business remains attractive to a buyer.

Emotional Considerations

Divorce can be emotionally draining.  Add onto that the decision to sell a business which can itself be emotionally difficult for the business owner. The stress of the pending divorce combined with the stress of selling a business may be overwhelming. It's important to seek professional counselling to help manage emotions during this process.  Avoid making decisions emotionally, as these decisions are likely to be regretted.

There are several strategies that can help to cope with the emotional stress of selling a business before divorce. This may include setting realistic expectations, focusing on the positive aspects of the sale.  Rely on your support network of friends, family, and professionals during this difficult time.

Read more about Navigating The Emotional Aspects Of Selling Your Business.

Selling a business before divorce can be a complex and stressful process.  But with the right legal, financial, and emotional support, it is possible to navigate the sale successfully. Consult with your lawyer and a financial advisor or business broker who can help you understand the legal and financial implications of the sale.  Seek professional counselling or therapy to help manage emotions during the process. Avoid making decisions emotionally.

Additional resources are available for those considering selling a business before divorce, such as Small Business Administration or the National Association of Small Business Owners.