What Happens to the Family Business During a Divorce?
Dividing assets is almost always challenging in a divorce, but nothing is more difficult to divide than the family business. This is because a family business can provide daily income in addition to being a long-term asset.
Taking this income away from either party is comparable to getting fired from work just because a divorce happened. This creates a situation in which both spouses could suffer dramatic financial consequences, so the court has to look for equitable ways to divide the family business.
Let’s Talk About Value
All businesses have a value. This value is what the business would be worth if it were to be sold on the open market. There are several different ways to value a business. One is based on cash flow and profitability, while the other is based on the value of hard assets such as real estate or equipment. Typically, a certified public accountant or professional appraiser will value the business so that a judge can know its true value during the divorce trial.
Once a value has been established, the judge will need to know who has ownership of the business so that a value can be assigned to each person’s portion of ownership. In many family businesses, people other than the divorcing couple may have ownership stakes, so all relevant information must be disclosed.
One Spouse Can Buy Out the Other
In some cases, one party may want to buy out the other so that he or she can take over ownership and operation of the business. This is possible once the value has been established. Any debt that that party takes on in order to complete the buyout will be his or her sole responsibility.
If a buyout cannot be completed in one lump sum, it is possible to reach an agreement where payments are made on a monthly, quarterly, or annual basis. This can serve as residual income while the spouse leaving the business looks for work or other ways to replace the lost income with a new business venture.
In other circumstances, neither party is willing to relinquish his or her ownership of the business. In this case, an agreement will need to be drafted that states how the divorce will impact each person financially:
- What will each person’s salary be?
- What role will each person play in the business?
- Will the ownership levels remain the same or do certain adjustments need to be made?
- What happens to the board and the voting rights of each party?
- Who will settle disputes that could impact daily operations if both parties cannot agree?
These are complex issues that are often sorted out with the help of an experienced family lawyer and a business attorney working in tandem. Interpersonal conflict can destroy a business, so it is critical that every issue be ironed out to ensure that the business remains viable.
If a divorce is particularly contentious, continuing to do business together may not be within either of your best interests.
Rancho Cucamonga Business Valuation Lawyer
If you are going through a divorce where the fate of your family business is at stake, you need the assistance of a divorce lawyer with experience in these matters. At the Law Office of Laurence J. Brock, we can help you determine what the value of your business is and what your options are for handling it during the divorce and beyond.
Give us a call to discuss your case in detail with no charge or obligation to proceed. Our number is 909-466-7661. You can also reach us online through the contact form below.