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What will happen to your family business if you get divorced?

On Behalf of | Sep 27, 2023 | Property Division |

Many businesses in the United States are family-owned. Couples sometimes get married and then start them together. This approach can understandably become a matter of contention if they decide to get divorced.

When a family business is involved in a divorce, there are several options for handling the business interests of both parties. Which option is preferred will depend on the unique circumstances of the divorce and the preferences of the individuals involved. Three common approaches to this situation are introduced below. Although, these are certainly not the only approaches that divorcing couples can take when managing the matter of a family business.

A buyout

One spouse can effectively buy out the other’s share. In this scenario, one spouse (often the one more involved in the business) either directly purchases their spouse’s share of the business, offers spousal support in trade or sacrifices other marital assets of equivalent value. A buyout amount is typically determined through negotiation or appraisal.

Co-ownership or a business partnership

Some divorcing couples choose to remain co-owners of a family business, especially if they can maintain a civil working relationship. This option can work if both spouses have specific roles in the business or if they have a strong co-ownership agreement in place. However, it may be challenging due to personal dynamics.

In some cases, former spouses may decide to restructure their relationship from marriage partners to business partners. This option involves creating a formal business partnership agreement. It serves as a type of contract that outlines each person’s role, how to make decisions, what responsibilities they’ll have, etc. This can work if the spouses have a strong commitment to the business’s success and can separate business matters from their personal issues.

Selling to a third party

If neither spouse wants to continue owning the business or if they cannot agree on a buyout price or co-ownership terms, they may opt to sell the business to a third party. This can be a relatively straightforward way to divide the business’s value between spouses. The divorce settlement can detail how a couple will divide the proceeds from the sale.

It’s important to note that each divorce case involving a family business is unique, and the best option for a specific couple’s circumstances will vary depending on factors like the business’s financial health, the roles of each spouse in the business and the emotional dynamics involved. It’s simply important for divorcing business owners to carefully consider all of the legal options they have at their disposal before committing to one approach over all others.