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Why couples need to have difficult business conversations.

Why couples need to have difficult business conversations.

Key points

  • 70% of all Australian businesses are family-owned
  • A Binding Financial Agreement helps plan for worst case scenarios
  • Get independent financial and legal advice

Have you ever thought about what might happen to your business if a significant other walked away from the relationship?

A person might not be a shareholder or involved in the daily operations, but there is usually a significant amount of personal wealth tied up in a business – wealth to which a life partner may be rightly entitled.

In recent weeks, the spotlight has glared on two of Australia’s highest profile families – the Forrests and the Cannon-Brookeses – after their public announcements of separation.

While the media has analysed the carve-up of companies, shares and money between the former couples, investors have been worried with the impact on operations and stock prices of the businesses they invested in.

Estimates suggest 70% of all Australian businesses are family-owned and while the volume of wealth may not be the same as the aforementioned families, the split of assets and finances is no less complex.

Couples and families where one or both parties own a business should strongly consider a Binding Financial Agreement (BFA).

A BFA signed prior to a marriage is commonly known as a pre-nuptial agreement, but it can be entered into at any time, whether you’re at the start of a relationship, in the middle or at the end.

Law firm Taylor and Scott defines a BFA as: “A private contract between two people, including same-sex partners that formalises how a couple’s property, assets, superannuation and liabilities will be divided in the event of a breakdown of a marriage or a de facto relationship.

“Once parties enter into a BFA, they give up their rights under the Family Law Act (FLA) for the Family Court to determine any or all property and financial matters should their relationship end.”

Dropping in the question of a pre-nup or discussing a financial carve-up with a person with whom you are romantically involved isn’t palatable for many people.

It can feel cold, like you are discussing a person and a relationship as a financial transaction.

But try flipping the tone of the conversation – you’re not raising the issue because you think the relationship is doomed, in fact it’s the opposite.

It is a risk management exercise for couples, like planning for what will happen to any children if the worst happens, or a continuity and recovery plan if a fire rips through the business.

Businesses that involve assets or finances being divided among multiple generations of family members are even more complex to manage.

The court battle between the Wrights and Hancocks over iron ore wealth in Western Australia is set to play out for months, despite the patriarchs foreseeing this problem in the mid-1980s.

The best setups ensure that everyone understands the collective good that comes from making sure the business won’t get caught up in any relationship breakdowns.

In some cases, a BFA is documented in a family charter or an overarching set of family principles, to the point where it’s not even a discussion – a BFA is as routine as a trip to the supermarket.

And don’t get caught up in platitudes like ‘we’ll split assets and finances equally down the middle’ – business structures are rarely that simple.

Once you have had the difficult conversation, it is time to get independent advice.

This is a conversation that should include accountants and lawyers, which makes sure the business side of affairs and the legal requirements are appropriately covered.

But it should also extend to everyone in your professional circle. If money is tied up in the business and a partner is entitled to a portion, do you sell the business? What will a business partner or shareholders think about this course of action?

Often couples and families have a financial outcome in mind without giving thought to how that would practically work.

By being crystal clear with a game plan, it takes away any fear of what might happen.

In a relationship breakdown, people get anxious and stressed without a blueprint for their future, whether it involves millions of dollars or knowing if they will have a roof over their heads.

Having a difficult conversation while the rapport is strong is far easier than trying to negotiate one at the end of a relationship.

Both parties have a chance to negotiate with a clear mind, not while grief stricken, angry or distressed, and that is the best scenario when it comes to extracting wealth tied up in a business.

This article was first published by SmartCompany on 31 July 2023. Licensed by the Copyright Agency. You must not copy this work without permission.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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