For many Chinese families, the family business is more than an asset. It may have been founded by grandparents, employ siblings and cousins, operate in Australia and across Asia, and be intended for the next generation. When the marriage of someone involved in that business breaks down, the separation can put the business, the wider family and its succession plans at risk.
With early planning, those risks can usually be managed. This article explains how Australian family law treats a family business on separation, and the practical options for protecting it.
Is the business part of the property pool?
A spouse’s shares, units, partnership interest or loan accounts in the business are property and will be included in the pool. Where the business is held by a trust or company the spouse controls, the underlying assets may also be included. Where the spouse holds only a minority stake alongside parents or siblings, or the business is controlled by others, the interest may be valued at a discount or treated as a financial resource rather than divisible property. See Nominee (代持) arrangements, offshore companies and family loans.
Valuing the business
Valuation is often the largest single dispute. Points to consider:
- Method. Valuers may use capitalised future maintainable earnings, net assets, or industry benchmarks. Different methods can produce very different figures.
- Owner’s remuneration. In family businesses, owners’ salaries are often set for tax reasons rather than at market rates, which affects the “true” profit.
- Personal goodwill. Where profits depend on one person’s relationships and skill, part of the value may not be transferable.
- Cross-border operations. Operations in China, Hong Kong or Southeast Asia need a valuer who understands those markets, foreign currency risk and restrictions on moving profits offshore.
- Single expert. The court usually prefers a single expert valuer appointed jointly, which reduces cost and the battle of experts.
Contributions: who built the business?
The court considers financial and non-financial contributions by both parties throughout the relationship, including the business-owner spouse’s work and the other spouse’s contributions as homemaker and parent that allowed the business to grow. Contributions from the wider family (for example, a business founded or funded by parents) are also relevant, and can significantly favour the spouse from that family where they are proven. Clear evidence of the business’s history, before and during the relationship, is essential.
Keeping the business intact
Courts generally try not to destroy a viable business. Common approaches include:
- The business-owner spouse keeps the business, and the other spouse receives other assets such as the family home, investment properties or cash.
- Staged payments over time, secured against business assets, where an immediate lump sum would damage the business.
- Restructuring the business or its holding structure so that one spouse exits cleanly, with appropriate tax advice. Australian CGT roll-over relief may be available for some transfers made under family law orders or financial agreements.
- Ongoing involvement is rarely recommended, but in some cases a spouse may keep a passive shareholding with proper governance and exit rights.
Confidentiality and continuity
A drawn-out court case can expose commercially sensitive information, distract management, unsettle employees, bankers and business partners, and harm relationships with suppliers in Australia and overseas. Family law proceedings are subject to publication restrictions, but disputes can still affect a business in practice.
Private mediation and family law arbitration are often well suited to business families: they are confidential, can be scheduled around business needs, can involve accountants and valuers directly, and can be conducted in Mandarin or Cantonese. An arbitrator’s award in a property matter can be registered with the court and enforced like an order.
Protecting the next generation
Separation is a moment to look ahead, not only back. Families should consider:
- Shareholders’ agreements and trust deeds that deal with what happens to shares on a member’s separation, death or incapacity.
- Binding financial agreements for family members entering marriages or de facto relationships, so that family business interests are dealt with by agreement rather than litigation. These must be properly prepared, with independent advice for both parties, to be effective.
- Wills, enduring powers of attorney and succession plans for the founders, so that a separation in the second generation does not derail succession.
- Family governance, such as a family charter or family council, setting expectations about ownership, employment of family members and decision-making.
Cultural expectations about family, face and inheritance can make these conversations difficult. An adviser who understands both Australian law and Chinese family business culture can help families have them constructively.
Frequently asked questions
Will I have to sell the business to pay my spouse?
Not usually. Courts and negotiated settlements generally allow the business owner to keep a viable business and compensate the other spouse with other assets or staged payments, where possible.
The business was started by my parents. Is it still at risk?
If you hold an interest, that interest is likely to be part of the pool, but your parents’ contributions are relevant. If your parents control the business, your interest may be treated as a financial resource rather than divisible property.
Can we resolve this without going to court?
Yes. Most matters settle. Negotiation, mediation and arbitration can produce binding outcomes, documented as consent orders or a financial agreement, without a public trial.
How we can help
Chua Tan Associates is a second-generation family practice that has advised family businesses since 1990, in commercial, estates and family law matters. Our principal Justin Chua is an Accredited Family Business Advisor as well as a Nationally Accredited Mediator, Family Dispute Resolution Practitioner and Family Law Arbitrator. We help business families separate in a way that protects the business, the children and the next generation’s inheritance.
To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry.
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Justin Chua 蔡智勋, lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal advice.
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