At a Glance
- Business valuations are critical in determining fair property settlements during divorce or separation
- Family trusts are not automatically excluded from asset pools, despite common misconceptions
- The court may "pierce" a trust structure if it finds the trust is a mere façade for personal asset control
- Valuation methods vary depending on business type, profitability, and ownership structure
- Expert witnesses often play a decisive role in contested cases
Understanding the Role of Business Interests in Property Settlements
When a couple separates, the Family Court assesses the totality of their financial resources under Section 79 of the Family Law Act 1975 (Cth). This includes not just direct ownership of companies, but also indirect interests such as shares, directorships, and influence over discretionary trusts.
A business is not merely an asset; it may represent years of effort, personal sacrifice, and ongoing income. However, from a legal standpoint, its value must be objectively measured and fairly apportioned. The court's goal is equitable distribution, not necessarily equal division.
Key factors influencing how a business is treated include:
- Whether the business was acquired before or during the relationship
- The extent of each party’s contribution to its growth
- Whether personal effort or capital investment was the primary driver of value
- The presence of non-family employees or external shareholders
Trust Structures and the Myth of Asset Protection
Many Australians use family trusts to manage tax liabilities and protect assets. However, in family law contexts, trusts rarely offer the level of protection people expect.
The Family Court has consistently held that if one party exercises de facto control over a trust—through appointment powers, discretion over distributions, or active management, the trust’s assets may be included in the property pool.
Kennon v Spry is a leading authority in Australian family law. The majority recognised that, within the family law framework, the court is not confined to formal legal ownership when identifying “property” or “financial resources”, but may look beyond form to the substantive powers held by a party within a trust structure and the practical benefits that may flow from those powers.
In that case, the husband had for many years acted as trustee of a discretionary trust and exercised effective control over its operation, including powers of appointment and distribution. The High Court observed that, in particular factual circumstances—such as where a trustee holds legal title and is able in practice to distribute trust benefits in a reasonable manner, and where the spouse is the object of powers giving rise to an equitable right to due administration, those powers and equitable rights may constitute interests capable of consideration for the purposes of s 79 or s 75(2) of the Family Law Act 1975 (Cth). Ordinarily, such interests will be characterised as significant “financial resources”, and only in limited circumstances, depending on the terms of the trust and the practical realisability of the interests, may they be treated as relevant to property adjustment.
It is also important to note that the High Court was not unanimous. Some members of the Court emphasised that legal ownership as trustee, or mere “control” of a trust, does not of itself amount to divisible “property”. Whether an interest is capable of adjustment depends on the specific terms of the trust deed and the particular facts of the case. In exercising family law powers, courts must carefully distinguish between formal ownership and interests that are practically capable of being exercised or realised. Any alteration of, or interference with, trust structures will ordinarily require satisfaction of the relevant statutory thresholds and be effected, where appropriate, through mechanisms such as s 106B or s 85A of the Family Law Act.
How Are Businesses Valued?
There is no one-size-fits-all method for business valuation. The approach depends on the nature and size of the business, its financial health, and the role of the owner. Common methodologies include:
- Historical Earnings Approach: Based on past profits, adjusted for owner-related expenses (e.g., private car leases, excessive salaries). Suitable for stable, cash-flow-positive businesses.
- Net Asset Value (NAV): Assesses the company’s assets minus liabilities. Often used for property development or investment companies.
- Market Comparison Approach: Compares the business to similar firms recently sold. Challenging in niche industries.
- Discounted Cash Flow (DCF): Projects future earnings and discounts them to present value. Used for growth-oriented enterprises.
In matters involving business or complex asset valuation, parties will commonly engage independent experts, such as chartered accountants or professional valuers, to provide opinion evidence. To minimise the cost and divergence associated with adversarial expert evidence, the family law procedural framework encourages, where appropriate and consistent with procedural fairness, the use of a single expert witness to address valuation issues. This approach is reflected in Part 7 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (including Rules 7.02 and 7.03), which confer discretion on the Court to regulate expert evidence accordingly.
Hypothetical Scenario
Consider a husband who owns a successful engineering consultancy established during the marriage. He operates through a company, which in turn is the sole beneficiary of a family trust that holds commercial property used by the business. His wife worked part-time in administration early in the relationship but later focused on raising children.
At separation, the husband claims the business is worth $1.2 million based on net assets. The wife’s expert values it at $2.8 million by capitalising future earnings and including rental income from the trust-owned property.
During proceedings, forensic analysis reveals that the husband has been drawing minimal salary and reinvesting profits into the trust-held property. The court determines that the trust is under his de facto control and includes its assets. It adopts the higher valuation, recognising the wife's indirect contributions and the artificial suppression of income.
The outcome significantly alters the property split, shifting it from an expected 60/40 division in the husband’s favour to a 52/48 split in the wife’s favour once superannuation and hidden equity are considered.
A Lawyer’s Perspective: What Often Goes Wrong
Clients frequently underestimate how aggressively the court examines business structures. Common mistakes include:
- Failing to disclose related-party transactions or intercompany loans
- Withdrawing excessive dividends or wages before separation
- Transferring assets to third parties shortly before or after relationship breakdown
- Assuming trusts or nominee companies provide absolute asset protection
Such conduct, even if formally lawful, may attract close judicial scrutiny. Under the overarching discretionary framework of the Family Law Act 1975 (Cth), the Court is entitled, when assessing the parties’ financial circumstances and contributions, to examine the purpose, timing, and practical effect of the relevant conduct. Where appropriate, this may result in adverse inferences being drawn or adjustments to the ultimate property division. In particular, where asset transfers or income arrangements are found to have the effect of diminishing the other party’s entitlement or claim, the Court will not be confined to the superficial structure of the arrangement.
Transparency remains the preferable course. The Family Court has consistently emphasised that parties are subject to a continuing and comprehensive duty of disclosure. Even where full and frank disclosure may lead to a less favourable financial outcome in the short term, it will generally be preferable to the significantly more serious legal consequences that may flow from non-disclosure, asset shifting, or overly engineered financial arrangements.
Key Takeaways
- Trust structures do not automatically shield assets from family law claims
- Control matters more than legal ownership when assessing asset pools
- Business valuations should be conducted by qualified, independent experts
- Post-separation financial behaviour can impact final outcomes
- Early legal advice helps avoid actions that may be viewed as asset dissipation
Frequently Asked Questions
Can a spouse be forced to sell their business?
Not automatically. The court prefers to achieve equity through offsetting other assets—for instance, by adjusting the split of superannuation or real estate. A forced sale only occurs if no other solution is viable.
What if the business was started before the relationship?
Pre-relationship assets are considered but not excluded. The longer the relationship and the greater the other party’s contributions (including non-financial), the more likely the business will be partially shared.
Are trust assets always included in the property pool?
No. The court examines whether a party has control. If the trust is genuinely independent, with arm’s length decision-making, it may remain outside the pool.
Who pays for the business valuation?
Typically, each party pays for their own expert. In some cases, parties jointly instruct a single expert to reduce costs, especially if they aim to settle.
Can I protect my business before marriage?
Yes. A binding financial agreement under Section 90C of the Family Law Act can specify how business interests are treated. However, both parties must receive independent legal advice for it to be valid.
How We Can Help
We regularly advise individuals and families navigating complex property settlements involving businesses and trust structures. Our services include:
- Assessing whether trust assets are likely to be included in the property pool
- Coordinating with forensic accountants and valuation experts
- Reviewing company records, tax returns, and trust deeds for signs of control or asset shifting
- Advising on binding financial agreements to protect pre-existing or future business interests
- Representing clients in court or mediation to achieve equitable outcomes
Our approach combines legal precision with financial insight. We understand that behind every balance sheet is a personal story—and we work to ensure both are fairly represented.
