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The family business and divorce: Points to consider

On Behalf of | Jul 31, 2023 | Divorce

Divorce brings many changes to personal relationships and financial and business arrangements. One particular complication arises when the divorcing couple owns a family business.

Due to its financial and emotional significance, what happens to the company during divorce can be one of the most challenging aspects to resolve. The resolution can take one of several routes, depending on the couple’s circumstances and the nature of the business.

Continue to run the business together

Although the marital relationship ends with a divorce, some couples maintain business relationships. This arrangement might work for couples with good working relationships despite their personal differences.

If both spouses have crucial roles in the business, are committed to its success and can compartmentalize their personal and professional lives, they may continue running the business together. Clear boundaries and well-defined roles in a written contract can aid in making this arrangement work.

One spouse buys out the other’s share of the business

If one spouse has a stronger attachment or contributes more significantly to the business, they might choose to buy out the other spouse’s share. This approach could be the best option when one spouse wishes to leave the business or doesn’t want to continue working together.

The process requires a fair business valuation. The spouse who keeps the business could make a lump-sum payment to the other, set up a payment plan or offset the cost with other marital assets in the divorce.

Sell or close the business

In some situations, neither spouse can or wants to continue running the business. The couple might sell the company to a third party in such cases. Proceeds from the sale would then be divided between the spouses according to their ownership division or the divorce settlement agreement. The couple might close the business if a suitable buyer can’t be found.

Dealing with family business during divorce is a complex process that requires careful consideration. Regardless of the chosen path, the ultimate goal should be to reach the best resolution for the company and property division process.