What Happens to the Family Business in a Divorce?

Even the friendliest of divorces can become complicated as all of the property is labeled as either marital or non-marital property and everything of value is divided equally; however, this complexity is taken to another level when a family business is involved. Divorce has the potential to seriously damage a business and it is important for couples to understand what is going to happen to a family business if a divorce takes place.

The Business Must be Valued and Divided

One of the biggest hurdles that must be cleared when it comes to divorce and a family business is valuing the business and dividing it appropriately. There are several different ways to value a business and even more ways to divide a business if a divorce takes place. Even if one spouse contributed more to the family business than the other, each spouse likely shared in the business to some extent. This makes dividing the business especially challenging. For this reason, a professional may be contacted who can value the business.

One Spouse Can Buy Out the Other Spouse

In a divorce, the goal is to divide the property equally; however, this does not mean that every piece of property has to be divided equally. It can be challenging to separate the business interests from the emotional aspects of a divorce. Therefore, sometimes, it is better for one spouse to buy the other spouse out of their portion of the business. This will prevent the headache of trying to run a business as a divorced couple while still allowing the assets to be divided appropriately. One spouse can use cash, stocks, bonds, or other assets, if available to them, to purchase the other spouse’s one-half interest in the business. First, the business has to be valued at a value that is acceptable to both parties. The parties may want to engage professionals experienced in valuing business to perform such a valuation. Once the business is valued at a mutually acceptable figure, the parties will know if they want to buy one another out of the business if that is an option that they can afford.

Some Couples Will Sell the Business Entirely

When couples cannot reach an agreement on how to divide the family business, many couples will just decide to sell the business entirely, splitting its value after deducting any debts or liabilities owed. In this situation, both parties are working to maximize the valuation of the business because this will yield the maximum amount of assets for both parties. This is also another way to avoid trying to run a business after a divorce has occurred.

A divorce involving a family business can create numerous complicated issues ranging from the valuation of the business to the division of the family business itself. For this reason, it is vital for anyone with a family business going through a divorce to consider reaching out to an experienced attorney for assistance.

Article updated October 9, 2020.