Divorce Meets Business Law: What Happens to a Family Business After Divorce

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Divorcing

There are roughly 3.7 million businesses in the United States jointly owned and operated by married couples. But with nearly one in two marriages ending in divorce, these husband-and-wife teams could find themselves in a messy situation when they decide to split up.

If you have a family-owned business and are considering divorce, there are several things you can do in advance to ensure the future of your business assets. Working with an experienced divorce attorney is the first step to reducing your divorce’s impact on your organization. To help you make a sound decision, here are some of your options when sorting out a joint business in the midst of a divorce.

Sell your entire business

As extreme as it sounds, this can be the best solution if you and your ex-spouse are not on amicable terms, and a working relationship is untenable. Because a family business is deemed as marital property in most cases, its value will have to be divided between you and your former spouse. By selling the business outright, it would be easier to divide the proceeds of the sale.

Additionally, selling a joint business lets you have a clean slate from a company associated with a life event you’d rather move on from. Furthermore, you can sell your business at a high price. It can help you deal with the financial impact of the divorce.

If selling the business doesn’t sit well with your ex-spouse, you can also consider sacrificing other assets. Perhaps you can give your ex-spouse a larger portion of your other assets, such as a family home. That being said, knowing which assets are more important to you is the key to negotiating a good deal.

Sell a share of your business

On the downside, selling your family business requires calculating how much the company is valued. This can lead to disputes if you and your former spouse cannot agree on how much the business is worth. It’s also possible that the other party won’t cooperate, leaving the business unsold. Lastly, if the joint business is your primary source of income, selling it could mean starting over from scratch.

If selling the entire business is not an option, a smart alternative is to sell a stake. This is a great opportunity to get your hands on some instant cash. Consider offering existing employees or partners a portion of your share. This lets you be in a better position to obtain a future buy-back agreement.

property

Buy out your ex-spouse

Another option is to buy out your former spouse’s share in the business. This is a smart choice if one of you is more dependent on the business than the other. For example, if your family business is a dentist’s clinic, it makes sense for the dentist’s spouse to keep the business.

It is imperative to reach an agreement with your ex-spouse over how much each of your shares is worth. This enables continuity for your joint business. However, it should be noted that one spouse might not have the capital to buy the other out. In this case, taking out a loan or getting a new business partner can help you raise the funds you need to buy out shares and keep the business alive.

Keep the business and retain a working relationship

If you and your ex-spouse can maintain a working relationship after your divorce, you don’t need to sell your business at all. Remember that for this setup to work. You will need to sort out how to set boundaries between legal, financial, and emotional issues.

When couples break up, they are likely to allow personal issues to get in the way of business. Don’t let this happen to you. Take all the time you need to set your needs and expectations so that you and your ex-spouse can work on concrete goals and strategies.

Also, you will need to redefine your roles clearly. While it’s true that together requires some teamwork, you don’t have to collaborate constantly. By identifying specific tasks that each person should manage, micromanaging can be avoided. If frequent interactions could be emotionally taxing, work on a setup that lets you work independently of each other.

The Verdict

Whether you’re planning to sell your joint business or keep working with your ex-spouse, it’s crucial to consult a law firm before finalizing your decision. Business and family lawyers can provide legal advice and guidance to ensure that your best interests are protected.

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