After a divorce you need to be careful when starting a business. If you do decide to start a business there are a few things you need to be aware of:
- If you have not already formalised any property settlement any business you start is likely to be included in the pool of matrimonial property available for distribution between you and your ex-spouse. The business may be included even though you started it after the divorce. If you have not had a formal property settlement you should immediately seek advice from experienced family lawyer about how to go about doing so;
- You are likely to enter a new relationship. Most divorced people do and sometimes more quickly than they expect. The second time around you can and should be much more cautious about your finances. You probably have a lot more money than you did last time;
- If you start a business after a divorce or break down of a de facto relationship then the business will form part of the pool of property available for distribution should any future marriages of de facto relationships not work out. That means you could potentially lose the business if the relationship doesn’t work out;
- If you start a new business you may wish not to involve any new partner in the business or if you do, to limit their involvement in business. If you make a new partner your business partner or they become a director or shareholder of your business it may be more difficult to remove them in the event of separation;
- There is a way you can protect your business and other assets going into a second relationship. It Is called a Binding Financial Agreement.
What is a Binding Financial Agreement (BFA) and how does it work?
A BFA is an agreement signed by a couple prior to, or during a relationship or post-separation. They are generally drafted by lawyers. For a financial agreement to be binding, the law requires that each party obtain independent legal advice, before signing the Agreement, regarding:
- The effect of the Agreement on the rights of the party;
- The advantages and disadvantages, at the time that the advice was provided, to the party of making the Agreement.
BFAs signed before a marriage are sometimes referred to as “pre-nuptial agreements”.
A BFA can give you the peace of mind of knowing that if your relationship doesn’t work out you will get to keep your business. The BFA can specify in the event of separation who gets to keep what assets. Alternatively, the BFA can specify that you will get to keep your business but all of the other assets and superannuation the two of you own can be divided up by negotiation after separation or, if there is no agreement, to be determined by a court or Arbitrator.
But what if I want to involve a new partner in my business?
You may decide you want to involve your new partner in your new business. They may have a lot to contribute which may lead to a successful business. If this is the case then you should obtain advice from an experienced accountant and an experienced business lawyer. They can advise you about the best ways to structure your business. It may be more cost-effective and simpler to bring in your new partner when you start the business rather than later on once the business has been established and is up and running.
If you bring your new partner into your business it is important that you make sure you have the same ideas, goals and aspirations for the business. If you are heading in the same direction the business is much more likely to be successful which is likely to make for an amicable relationship.
Can my ex-spouse claim any of my new business or any of my income from my new business?
Once you have had a formalised property settlement by way of a court order or BFA, it is difficult, but not impossible, for your former spouse to claim any more of your assets or superannuation. However, there are a few exceptions including:
- If there has been fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or
- in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out; or
- a person has defaulted in carrying out an obligation imposed on the person by the order and it is just and equitable to vary the order or to set the order aside and make another order; or
- in the circumstances that have arisen since the making of the order, being circumstances of an exceptional nature relating to the care, welfare and development of a child of the marriage, the child or the applicant will suffer hardship if the court does not vary the order or set the order aside and make another order; or
- a proceeds of crime order has been made covering property of the parties to the marriage or either of them.
A few more exceptions apply case of Binding Financial Agreements. In these cases your former spouse may be able to apply to court to have the property settlement order or BFA set aside.
However, your ex-spouse is able to claim the following from you even after divorce:
1. Child support
If you have children under 18 it is likely you will be required to pay child support. In most cases child support is determined by an administrative assessment done by the Child Support Agency (which is a division of the Commonwealth Department of Human Resources). They will assess you to pay a specified amount based upon each party’s taxable income from year to year, the number of children and their ages and how many nights they spend with you. In some cases you can also be obliged to pay additional expenses such as school fees and other education costs.
Alternatively, you can reach an agreement with your former spouse about the amount of child support and other expenses for the children you are required to pay.
2. Spouse Maintenance
You can be required to pay spouse maintenance to your former spouse even after you are divorced. Spousal maintenance can be ordered by a court or awarded by arbitrator where one person is in a difficult financial position following a separation and requires funds to be able to support themselves. A liability to pay spouse maintenance can continue many years after the divorce. However, an application for spouse maintenance to the court must be made within 12 months of the date of divorce (unless the applicant is unable to support themselves without a government pension, allowance or benefit at that date).
If you are considering establishing a business after separation it is important you seek advice from an experienced specialist in family law.