Ending a marriage is never an easy decision to make. The mental, emotional, and financial damage that it leaves spouses and their children can take many years to heal. One of the messier aspects of separation involves dividing the family assets between separating spouses. Regardless of whether exes end a marriage amicably or not, getting the help of a family attorney is strongly recommended especially if they share a business together.
The main question for a family business after a divorce is whether the business could and should continue. When founding and growing the business has become a labour of love for both parties, it can be difficult for divorcing couples to cooperate and run the business amidst divorce settlements. If the enterprise is doing well and both parties play different yet equally valuable roles to keep the business running, they should consider continuing running the business. If they can set aside their personal differences, maintaining the business as it is benefits, not just the ex-couples, but their children, employees, clients, and other involved parties. Otherwise, several options exist to protect the business and resolve the issue of its ownership and management.
When couples are unable to cooperate on running the day to day operations, the business is likely to sooner or later suffer poor performance in providing service, employee management, and cash flow management. The business reputation can take a hit because of these problems which would only add financial strains on a separating couple on top of the legal costs of divorce. In an ideal scenario, a carefully laid out premarital or post-marital agreement would be in place to secure the future of the business in case of a divorce. If this is not the case moving forward, one option is to divide the business before worse comes to worst.
Dividing a business is no menial task and might not always be possible in some cases. This is a route that separating spouses can take if a business has multiple divisions that can be run separately or is large enough for each party to be able to sustain running just a portion of the original company. Determining a fair division of assets based on the capital contribution and skills of each spouse is best settled with the advice and direction of a divorce lawyer as well as a commercial lawyer. The goal for this type of resolution is to split the assets fairly while minimizing the tax implications of changing the business structure and ownership.
If partitioning the company is not possible, or if one spouse is disinterested in continuing on with the business, buying out the share of one spouse is one course to take. While hiring a third-party valuation expert can be expensive, a neutral professional can help settle a suitable number to buy out shares that is agreeable for both parties. Buying out a spouse may cause financial strain on the party looking to keep the business, in which case they can agree to sacrifice other assets in the divorce settlement in exchange for business shares. Forfeiting other conjugal properties such as vehicles, homes, antiques, and other valuable assets can be used to retain full ownership of a business post-divorce. If the divorce ended cordially, the ex-couples can even setup friendly payment terms for one party to be able to buy out the other.
Should a separating couple fail to come up with a suitable agreement on sharing the business, the best course of option is to sell the company completely and divide the proceeds in a settlement agreement. This provides both parties with a clean break and a chance to start over which may be much needed following an ugly break up. If the ex-couples are able to sell the business quickly, the proceeds of the sale can even help finance the divorce, as well as give each party enough capital to start over with a new venture. Otherwise, the former spouses should be prepared to be co-owners of a business for a longer time.
Whether it is the right decision for the couple or not, going through a divorce is never an easy process. The divorce process can also get considerably harder with a business in the mix. It is fairly common for a family business to be the largest shared asset for a divorcing couple. With the reality of 50% of marriages ending in separation, opening the conservation on divorce, as well as planning for the worst as soon as the engagement, isn’t pessimism but a wise practicality. For entrepreneurs, there are various protective measures that can help protect a family business through different scenarios. A prenuptial agreement, a buy/sell contract, getting a domestic asset protection trust – these are just some practical options that can help shield a family business from a divorce battle.