Can a family law dispute affect your company?

Date: Jun 17, 2015
Document Type: Article

Often family lawyers have to provide advice to their clients with respect to property disputes involving a business, whether a family company or a company owned with fellow shareholders. Such a dispute may have an impact not only on the interests of the client, but on the interests of third parties as well.

If you own a company and are facing family law property proceedings, you may have to consider a number of issues. 

Your business interest in most cases will be considered as "property" which will form part of the pool of assets available for distribution at property settlement. The value of your interest will be the first crucial issue to resolve. This will need to be done by an expert, usually an accountant specialising in business valuations.

In some cases, the Court will need to make a declaration as to the nature of your interest, if this is in dispute, as part of the process of determining the pool.

Once your interest in the property is identified and valued, the Court will be able to make orders with respect to your business. As a result, you may retain the interest as part of the property settlement or have to transfer the interest to your spouse/de factor partner or sell the business and share the proceeds with your spouse or de-facto partner.

In making orders, the Court’s main goal is to achieve a just and equitable property settlement for both parties and the Court may even alter rights and interests of a third party or grant an injunction against a third party, if the justice of the matter so requires in your particular circumstances. In particular, the Court can do any or all of the following:

  • Restrain the company from entering into a transaction that would impact upon the value of your share in a company;
  • Compel your company to register a transfer of shares from you to your spouse/de-factor partner;
  • Require your company to transfer company’s assets to your spouse/de-facto partner, albeit this will be done in limited circumstances – normally where you have effective control of the company assets;
  • Restrain your company from commencing legal proceedings against your spouse/de-facto partner;
  • Restrain your company from seeking to recover property from your spouse/de-facto partner, for example, in circumstances where your spouse/de-facto partner has no interest in the company but has had the use of the company assets during the relationship and may wish to prevent those assets from being recovered by the company upon the breakdown of the relationship.

Although the Court’s power to make orders against third parties is wide, it is not unlimited. The Court can make an order against third parties only if it is satisfied that such an order is “reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage”. If the Court entertains granting an injunction against a third party, it has to make sure that it is “proper” and “just and convenient” in the circumstances of the matter to do so. In making these determinations, the Court has to take into account the following factors:

a)     any taxation effect of the order on you and/or your spouse/de-facto partner;

b)     any taxation effect of the order on the third party;

c)     any social security effect of the order on you and /or your spouse/de-facto partner;

d)     the third party's administrative costs in relation to the order;

e)     if the order concerns a debt of a party to the marriage, the capacity of a party to the marriage to repay the debt after the order is made;

f)      the economic, legal or other capacity of the third party to comply with the order;

g)     any matters raised by the third party as a result of being accorded procedural fairness;

h)     any other matters that the Court considers relevant.

In most cases, the Court will apply caution and restraint in exercising its power with respect to third parties. However, when the Court does entertain orders or injunctions against third parties, the company and its directors, although being outsiders to the relationship, will be exposed to public scrutiny in the course of the proceedings. For this reason,the third parties must be given notice of the orders sought against them and, in some cases, joined in the proceedings, to give them an opportunity to represent their interests.

It is obvious that the Court’s power to make orders and injunctions against third parties, including companies, has made property proceedings more complicated and we advise that you seek a lawyers advice if any of the issues discussed above relate to you.

Please, note that the information above was prepared in June 2015 and is provided as guidance only and, in any case, may have become outdated by the time you read it. 

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