Divorce is often an emotional, complex process, sometimes especially when it involves a family business. This is a substantial asset that may have a very high value, and it’s a more complicated asset to divide than something like a bank account.
The options for handling a family business during a divorce depend on various factors, including the nature of the business, its financial situation and the preferences and goals of both spouses. Below are some common options to consider when strategizing about how to manage the value of a family business during divorce.
Sell the business
The first option that many people consider is selling the family-owned company and then splitting the proceeds between the spouses. This can be a straightforward way to liquidate the business and divide the assets equitably. However, selling a business may not always be the best financial option, especially if the business is profitable and one or both spouses want to continue its operation.
Use a buyout agreement
If one spouse wants to retain the business, they can negotiate a buyout agreement. When this is done, one spouse essentially buys the other’s share. They may use structured payments if that makes it easier financially, or a lump-sum payment if possible. Alternatively, they may sacrifice the right to retain other valuable assets that are part of the marital estate. The value of any buyout should be determined through a fair and accurate appraisal.
Co-ownership or a continued business partnership
In some cases, divorced spouses may choose to continue co-owning and operating their business together, even though they are no longer married. This option requires effective communication and a clear business partnership agreement to address decision-making, responsibilities and financial matters.
Often, whether or not co-ownership is a viable option just depends on the nature of the divorce and the relationship that the two people have moving forward. Some couples may be divorcing in the wake of an extramarital affair, for instance, and they may find it impossible to just redefine their relationship as business partners. Others may be involved in an amicable divorce, however, where they both agree that the romantic relationship didn’t work, but there is no truly significant tension between them. They would find it much easier to become business partners.
Exploring all options
Ultimately, each couple needs to assess for themselves which approach is most likely to help them reach their personal goals, their business goals and a fair divorce settlement overall. Seeking legal guidance can help to provide each spouse with this consequential clarity.