Law Articles

What Happens to Your Family Business During a Divorce

Going through a divorce is messy enough, but what happens if you and your spouse jointly own a family business? Not only are you facing important decisions about how you will be splitting up your personal assets—you’ll also be tasked with dividing up or selling off your shared business. No matter what decision you and your spouse ultimately make, it’s important to take some time to fully understand your options so that you can make an informed and confident choice. Before you and your divorce attorney sit down to discuss specifics, it’s worth understanding what some of the potential actions might look like.

Understanding the True Value of the Business

Before you can begin negotiations, you will need a neutral third-party to formally appraise the business. This will offer an accurate picture of the business’ value (or lack of value) and help determine a proper course of action. You should take some time to visualize the future you want after your divorce is finalized—does your business play a role? Are you actively running the business on your own, or do you think you and your ex are on friendly enough terms that you could continue to run it together? Another option is to let your ex-spouse buy out your portion of the business and you can walk away completely. Take some time to set some mindful goals, and discuss these with your divorce lawyer.

When One Spouse Wishes to Keep the Business

For many divorcing couples who jointly owned a business, a common resolution is for one spouse to assume full responsibility. In order for this to happen, the spouse who wishes to keep the businesses typically buys out their ex’s interest based on the value given by the independent appraisal. As an added bonus, the direct purchase of shares in the event of a divorce is not considered taxable. If the spouse who is taking over the business does not have sufficient funds to fully buy out their ex’s interest, there are ways to design a settlement to pay off that stake over time. This settlement will also include a release of claims for the spouse giving up his/her stake releasing him/her from all future commercial responsibility for that entity. Additionally, the spouse released from responsibility would need to obtain a representation that he/she earned no extra income from the business once the release is legalized.

Still on Friendly Terms? You Could Still Run Your Business Together

While it is certainly simpler in many ways to continue to jointly run your business like you used to, this option only works if you and your ex can still be civil and professional around each other. Even if you think that you can work it out and remain friendly, think carefully about what this truly means—can you truly remain objective and collaborative with your former spouse? If you have even the tiniest bit of hesitation, you should probably explore another option.

 

There’s much more to discuss about family businesses and divorce and a trusted family law attorney should be your first call. Reach out to the dedicated divorce law team at Garretson & Holcomb, LLC today by calling (513) 863-6600.