Divorce is a complex and often emotional process that can impact various aspects of a couple’s life, including shared business interests. When a married couple who co-owns a family business decides to divorce, questions about the future of the business inevitably arise.
The family business often represents a significant financial asset and a shared vision and effort. Navigating the division or continuation of the company during a divorce requires careful consideration.
Determining the value of the business
Determining its value is the first step in addressing a family business in a divorce. This might involve hiring a business appraiser who can assess various factors such as assets, liabilities, income, market conditions and other applicable factors. The valuation provides a basis for negotiations regarding the division of this asset.
Understanding how the business is legally structured can significantly influence how it is handled during divorce. Different business types, such as sole proprietorships, partnerships, corporations or LLCs, may be affected by different rules and considerations. If only one spouse is the legal owner, the other might still have a claim to a portion of its value, depending on the situation.
Any existing prenuptial or postnuptial agreements that specify how the business would be handled in a divorce will typically be honored. Without such agreements, the court may consider each spouse’s contributions to the company, including financial investments, time, effort and even sacrifices made for the business’s sake.
Options for moving forward
Several potential paths exist for dealing with a family business in a divorce. You and your ex must carefully consider each of these. One option is to sell the business and divide the proceeds. This choice might be suitable if neither party wants to continue running the business or an agreement on co-ownership can’t be reached.
Another is a buyout, which might be negotiated if one spouse wants to continue the business while the other doesn’t. This would require an agreement on the value and terms of the buyout, potentially involving a payment plan or trade-offs with other assets.
The final standard option is to continue co-owning and operating the business together. This arrangement requires a strong working relationship and clear roles, as well as a conflict resolution agreement (at minimum) in place moving forward.
Regardless of how the business is handled, the agreement should be in writing to avoid any confusion in the future. Seeking legal guidance is important so that you can get all the information you need to make a decision in your best interests.