Saving or dividing a family business during a divorce

June 27, 2013

Divorce is one of the most common reasons for the failure of a family business. Starting a family business is often so time consuming that owners often fail to consider what to do in the event of a divorce. Although a divorce can do significant damage to a family business, there are several important steps family business owners can take to protect themselves.

Valuing the business is crucial

First, it can be helpful to complete the divorce before the business takes off. According to Crain's Chicago Business, valuing the business and deciding which portion each spouse should receive is one of the most difficult aspects of dividing a company. If possible, this decision should be made when the business is created and should be put it in a written or prenuptial agreement to reduce the potential for conflict in the event of a divorce.

In terms of valuation, hiring an expert can be extremely beneficial. Additionally, the National Federation of Independent Business states that it is essential to have all pertinent paperwork ready for the valuation expert. This includes items such as:
- Budgets
- Marketing plans
- Stockholder agreements
- Tax returns
- Contracts

If an agreement on valuation cannot initially be reached, splitting the business in half is not recommended. Divorce can be complex and challenging, and it may be difficult for former spouses to equally run a business.

A workable option is to try to reach an agreement that gives one spouse ultimate control. In order to determine which spouse receives control, consider things such as who initially started the business, and who contributed the most in terms of time and money. Additionally, consider if any responsibilities of one spouse can be delegated to another individual or outsourced.

Continuing to share the business has potential implications

If a decision is made to continue operating the business together after divorce, it is beneficial to have a shareholder agreement that gives either spouse the opportunity to be bought out. This ensures that neither spouse will feel there is no way out of the business.

Finally, even if issues related to dividing the business are solved amicably, it is important for both spouses to be aware of the permanent emotional and financial effects of a divorce. Almost every family-owned business will be affected by a divorce, although some do continue to succeed. Each spouse will have to adjust to running the business while no longer married, and it is likely this will have a significant impact.

No matter what the outcome, it is crucial to have a team of professionals available to assist with the process. Divorcing couples who also run a business could benefit by speaking with an experienced family law attorney. A qualified attorney will understand the needs of both the couple and the business and help develop a creative solution.

Article provided by Suzanne J. Noland
Visit us at www.suzannenolandlaw.com