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March 30, 2017
Business Planning in the Face of Death and Divorce

From a commercial standpoint, the dissolution of a marriage or de facto relationship can result in any number of lasting complications that affect the future and survivability of a business and the parties involved.

Business owners need to be aware of such risks, in addition to those posed by the death, critical illness or incapacity of a business principle, and pre-emptively address them.

A combination of forward-looking family law and estate planning strategies will be key to mitigating some of these risks. Here are five things to keep in mind when attempting to safeguard the future of your business and its participants.

Separate Your Business from Your Personal and Family Assets

If your business is exposed to a claim from your former spouse or de facto partner due to a relationship break down, the structure of your business could play a vital role in dictating the outcome.

Setting up a trust may provide you and your business with an added layer of protection, however, this must be prior to the commencement of any relationship or developing problems.

Making it easier to distinguish between the contributions you made to your business and to the relationship is just one of the ways you can protect your business assets.

Pay Yourself an Industry Standard Weekly Wage

Further to the above, it is advisable that you seek to insulate yourself from any argument alleging family resources were diverted in support of your commercial endeavours.

Treat the income you earn from your business as exactly that and pay yourself a standard weekly wage for the industry you are operating in.

You should also maintain separate business and personal bank accounts to create a clear distinction between your expenditures, and keep any and all business receipts.

Have a Buy Sell Agreement Drafted and Put in Place

If you are a part owner in a business, regardless of its structure, it is advisable that you consider drafting a Buy Sell Agreement to provide certainty for the personal estate plans of the principals involved.

Having an effective buy sell agreement in place may provide other key persons with a mechanism through which they can acquire the ongoing interests of a business owner in crisis.

While this may not make your business impervious to a claim from your former spouse or de facto partner, it will present a clear picture of what contributions were made by who and what assets are and are not ‘relationship property.’

Plan for Ownership Succession and the Transfer of Assets

Estate planning for business should ensure that control of the business and the transfer of assets is managed to the maximum benefit of the deceased’s estate, beneficiaries or any other key persons in the event of a business principal’s sudden death or incapacity.

This may require planning for future changes to trustees or trust appointors, the appointment of alternative directors, the appointment of family law or corporate attorneys or to the selection of executors and beneficiaries of your Will.

You may require additional documentation such as buy sell agreements, shareholders agreements, partnership arrangements, trust deeds, leases, licences and superannuation death benefit nominations.

A Tailored Approach to Business Planning

Ultimately, the aforementioned points should be tailored to the particular needs of your business in addition to your own.

And while people do not move typically through life or enter into relationships expecting the worst, proper business planning should be a considered action and deliberate priority for business owners.

Contact David Lewis, Partner at LBH on dlewis@lbandh.com.au if you are in need of legal advice and guidance in relation to your business and the required documentation.