What Happens to a Family Business During a Divorce?

No divorce is simple, but there are some situations that make the process even more complex. One example is when the couple that is divorcing own a family business.  If a business was owned before marriage by one partner’s family, it is most likely to be considered a separate asset. Though that generally means that the spouse that originally owned the business will retain control and ownership, there may be contentious issues about contributions and what part of its current value is a marital asset.  For a new venture created collaboratively by both partners, the business is an asset that needs to be dealt with in a way that is fair and equitable.

There is no doubt that the most straightforward way to deal with a family business that is community property is to dispose of the business and split the proceeds, but most people do not want to throw away what may represent years of hard work, passion, and goodwill. Selling a business also has a high likelihood of eliminating both spouse’s source of income, and that is not likely to be appealing to either one.  Though it may be possible for ex-spouses to continue working together, it is rarely done. Instead, the two usually try to come up with a way to let the business continue and have one spouse buy the other’s interest in the business either with cash or some offset agreement involving the equitable distribution of other marital property

There can be numerous complicating factors that have to be negotiated when one spouse leaves the business as a result of a divorce. Just as is true when a business partnership breaks up, the partner that leaves the business may be interested in starting a new business on their own. This can put you in direct competition with each other, so you may want to craft a non-compete agreement that spells out how issues such as business name, employee and client retention and recruitment, location and more will be dealt with.

If you can’t agree on who is going to continue to keep and run the business, the courts or mediators will have to get involved and make the decision for you. Likewise, you will probably need outside experts to help you assess the business’ value to ensure that each spouse is treated fairly during the distribution process.

Splitting up a family business is difficult under the best circumstances, and extremely challenging when emotions are running high. For assistance with this and other issues surrounding your divorce, contact our firm today to set up an appointment.