How To Handle Divorce In A Family Business

Family business at the best of times can be fraught with hurdles, however adding divorce into the mix really can add a lot more complexity. The following article looks at the best options for divorcing business owners.

How To Handle Divorce In A Family Business

By Larry Light | MAR 7, 2016 | forbes.com

The marriage didn’t work out, but if you’re in business with your spouse, figuring out what to do with that vital asset is tricky.

Divorce can be a messy situation for almost everyone involved — and adding a family business into the mix certainly doesn’t make things any easier, especially when two co-owners part ways.

For obvious reasons, divorce isn’t always top-of-mind for couples who go into business together. After all, when you’re caught up in the excitement of launching your own venture and seeing your hard work come to life, the last thing you want to plan for is the possibility that it might come to an end. But part of starting and owning a successful business is planning for the unexpected, including the major personal and business-related changes that divorce can bring.

So how can you navigate the process and make it out the other end with your assets and financial standing intact? There are three methods of handling this situation, but each comes with its own pros and cons. Here’s a quick breakdown:

Continue to own the business together. For some people, the thought of co-owning a business with an ex-spouse may not be ideal. But for others, the arrangement can work. If you think that you and your ex-spouse can work well together and continue to run the business, even after the divorce is final, then this may be the best option for you.

There are a few pros to continuing to own the business together: for one, you both get to keep your interest in the business, which means neither you nor your spouse has to sell your respective portions. Another benefit to co-ownership is that there’s no need for a valuation of the business, which can be an exceptionally expensive process, depending on the unique complexities of your business.

On the other hand, taking this route also means that you will need to keep in close contact with your ex-spouse to maintain a good working relationship and trust him or her to do what’s best for the business. Co-ownership will not work if you can’t maintain an amicable business relationship. If this is not a possibility for you, then you may consider the following options when deciding on the future of your business.

Related Article: 6 Steps to a Peaceful Divorce

Buy out your ex-spouse’s half of the business. Your business is just another asset owned by both of you, so it’s going to be treated the same way from a legal and financial perspective. If you’re not going to continue sharing the business with your ex-spouse, then it needs to be divided for each of you to get your fair share.

To start, you’ll need to hire a business appraiser to perform a valuation of your company. As mentioned earlier, this is a costly process, but you can help save money by hiring one appraiser to perform the valuation. That way, you can split the cost of the valuation with your spouse, rather than branching off and hiring separate appraisers to complete the process (which can double the price).

After the valuation is complete, you can either buy your ex-spouse’s half of the business (or vice versa, depending on your unique situation), or you can use other assets for an even exchange. If both you and your ex-spouse want to stay involved in the business, this situation can be particularly difficult; however, if you are more invested in the business than your ex-spouse (or vice versa), it should be pretty easy for you to determine which of you will buy out the other. If you’re the spouse who wants to keep the business, now it’s all yours.

Unfortunately, keep in mind that you’ll also need to accumulate the funds to purchase the other half from your ex, unless you’re sacrificing another asset for the business. If you’re the spouse who isn’t interested in keeping the business, you now have that much more money (or assets) in your pocket, due to your ex-spouse’s purchase.

Related Article: Separation – A Practical To Do List

Sell the business. The final option is pretty straightforward: sell the business and split the profit with your ex-spouse. If you choose to go this route, then the two of you should still hire an appraiser to perform a valuation of your business so you can determine an appropriate selling price. Assuming that your business sells quickly, then you will both have money to do whatever you please — you can even use it to start your own business. Unfortunately, if your business is on the market longer than expected, then you’re stuck working with your ex for a little more time.

No matter what path you choose when determining your business’s future, it’s crucial to make sure you hire a team of qualified professionals to help facilitate the process, including an attorney, a CPA and a financial advisor. No matter how well the proceedings go, the emotional and financial effects of divorce can be difficult to manage. By having a trusted team that’s working in your best interest, you can move forward with your life and take on your next venture with confidence.

For more articles please visit the Resolve Conflict Blog here. If you have any queries on Family Law or Mediation please don’t hesitate to contact us on 03 9620 0088 or email info@resolveconflict.com.au