When a business becomes contested property in relationship fail

When couples mix business and pleasure, forensic accountant Graeme Smith says the value of each other’s contributions will come under close scrutiny from both legal and financial perspectives should the relationship fail.

How does a spouse contribute to a family business, even when they are not an employee? The answer to that simple question has a depth of complexity that will often require extensive digging into, should the relationship unfold.

That’s why contracting-out agreements – in which couples starting out choose to opt out of the Property (Relationships) Act and shape their own plan for a division of property when a relationship breaks up – should give careful consideration to business assets.

Although one party may consider the business to be his or her separate property, in the event of a break-up, the other party may well have a legitimate claim to a portion of the gain in the value of the business that occurs during the relationship.

The issue often leads to larger settlements in favour of the ‘non-working’ spouse than might otherwise have been contemplated. When the relevant Property (Relationships) Act provisions apply, the law converts the gains which accrued to the separate property into relationship property.

Typically, where a break-up involves these and other complexities of

a financial nature, a forensic accountant must be engaged to identify the underlying elements of business and financial arrangements. The forensic accountant then provides expert evidence.

However, many of the complexities can be avoided by good planning and sound advice at the time of setting up a contracting-out agreement, followed by proper management of the financial arrangements . There is also a need for periodic review of the agreement, to ensure the ongoing management and conduct matches what was planned originally.