The fate of a family business during a divorce can vary significantly based on several factors, including the nature of the business, owners’ goals and the value of the marital estate as a whole. Some married business owners use prenups or postnuptial agreements in advance to determine what happens to the business if divorce occurs, but many do not have such an agreement in place.
What is certain, however, is that divorce will have an impact on a mutually-owned company moving forward. These are three different options couples may want to consider as they contemplate their professional situations during divorce.
Division of assets – including the business
In a divorce, assets are usually split up between both spouses. If the family business counts as marital property (acquired during the marriage), it is likely subject to property division. The extent of this division can depend on various factors, including each spouse’s contribution to the business, their roles at the business and its value overall. Oftentimes, dividing this type of property means selling the business, but this is not the only way to approach division of a company’s value.
Executing a buyout for one spouse
In some cases, one person may choose to buy the other person’s interest in the family business to maintain sole ownership. They still want to be a business owner, rather than selling to a third party. This can involve negotiations on the business’s value and the terms of the buyout. For instance, spouses may trade assets. One person keeps the family business and the other keeps the family home, or something of this nature.
Continuation of operations as joint owners
Arrangements may need to be made to ensure the continuity of the business despite the divorce, such as assigning roles, responsibilities or ownership shares. Both people can potentially choose to work together after the divorce, as business partners, even when the marriage ends. They just need to make sure they clearly define this new relationship.
The handling of a family business during a divorce can be intricate and require legal expertise. Each situation is unique. It’s important for all involved to know what legal steps to take to decide how to proceed with the business while dividing assets in a divorce.