Starting a business venture – have you REALLY thought of everything?
Often when starting a business venture, the excitement of starting the project takes over and before you know it you’ve already started operating and you’re already earning an income and you are also entering into transactions with third parties that may or may not expose you to debt or legal actions.
You may speak to your lawyer about the correct company structure to establish, for example, whether you should start your business as a sole trader, partnership, director of a company or through a trust. But have you thought about how your private life can impact on your business life and asset pool?
Starting a business is all consuming and it can be easy to overlook important matters such as insulating your new business venture from the ups and downs of your personal life.
You may or may not be partnered at the time that you start your business. You may be in the unfortunate position where you separate with your partner whilst you are operating your business or, you may start a new relationship after you have commenced operating your business.
You may wish to take advantage of a binding financial agreement to transfer the family home to the spouse or partner that is not a director of the company operating the business. This is a particularly useful strategy for protecting the family home against any actions that may be commenced by creditors of the business. However, you must ensure that the binding financial agreement is entered into before you have notices from creditors , outstanding debts and/or bankruptcy notices.
Assuming that you have spoken to your lawyer and your accountant about your business plan, you should receive advice from them about the appropriate structure from which to establish your business. However, it is the unfortunate truth that people don’t often consider the impact that their relationship would have on their business and on their financial situation. It’s not a topic that people often think about but entering into a binding financial agreement is an extremely useful and effective financial planning tool. It is also an extremely useful and effective estate planning tool.
Have you stopped to think about the impact on your business if you and your partner separated?
Do you realise that your business is property within the meaning of the Family Law Act?
Have you also stopped to think about the impact on your business if you and your partner enter into the business together and if, say one of you decided they no longer wanted to be involved in the business?
Do you want to be placed in the position where you may have to value your business or worse still sell it in order to settle your family court claim?
There are very few tools available that will assist you to quarantine and to protect your business assetts from claim in the unfortunate event of a relationship breakdown.
A Binding Financial Agreement entered into either prior to a de facto relationship, during a de facto relationship or during a marriage or even following separation will enable you to quarantine and protect your business from any claim that the other party may wish to make.
For example, if you don’t protect your business asset with a binding financial agreement and if you are separating then it is likely that the other party will demand to see all of your business activity statements for the business, income tax returns for the business, profit and loss statements for the business and the list goes on... All of this information will have to be disclosed pursuant to your obligations of disclosure under the Family Law Rules. This may be a very intrusive process, and if you are in business with third parties it can be disruptive and damaging to your business relationship. In addition to partners, other shareholders who may not be thrilled about sharing all of their financial information with your former spouse or former domestic partner..
A properly drafted shareholders agreement that envisages what will occur with the business in the event of the separation of one of the parties is another useful tool used to protect against nasty and expensive litigation.
Provided that you are not using the binding financial agreement to defraud creditors and provided that you are not using the binding financial agreement to deal with the proceeds of crime, then there should be no impediment to you using the binding financial agreement as an excellent financial planning and business management tool.
A binding financial agreement can be entered into between same-sex partners, before the commencement of a de facto relationship, during a de facto relationship or after a de facto relationship has ended.
A binding financial agreement can be entered into between heterosexual partners before the commencement of a de facto relationship, during a de facto relationship or after a de facto relationship has ended or before marriage, during marriage or after separation or even after divorce.
There is a binding financial agreement to suit each and every need.
With respect to estate planning matters, a binding financial agreement can preserve assets to ensure the children of the previous marriage whether they are adults or minors are provided for appropriately.
Think about the assets that you want to preserve and quarantine from any claim and then arrange your Financial Agreement. With the Internet and email there is no necessity for you to even sit in the same room with your lawyer, these instructions can be provided by email and by telephone.
If you wish to prevent challenges being made to your estate after your passing and if you have a situation where you have children from a previous relationship, or have stepchildren then you may wish to consider re-drafting your will to reflect the terms of your binding financial agreement. Although you cannot prevent an eligible person from making a claim against your estate, you can make it difficult for them to successfully maintain a challenge and in many instances the binding financial agreement is successful in discouraging such claims especially if it is used together with other financial and succession planning strategies.
The best time to consider drafting a binding financial agreement is before you commence your business structure or as soon as possible whilst your business is operating and able to pay its debts as and when they fall due. The best time to consider your estate planning strategy is after you have finalised your binding financial agreement. It is always useful to ensure that you use the same lawyer for both purposes as that lawyer will have an intimate understanding of your particular needs and requirements.
Anna Carthew of Ballarat Legal Resolution Services is a Family Law specialist and one of our very talented referral partners who offer Legal Advice on our Financial Agreement Kits. She can assist you with asset protection, binding financial agreements, estate planning and shareholder agreements.
©Anna Carthew Ballarat Legal Resolution Services 2016