Divorce can significantly affect a family business. When a divorcing couple owns a business together, deciding its fate can become a complex and often contentious part of the settlement process.
There are several options, each with its own set of challenges and considerations. Understanding each of the common options below can help owners to determine what to do about their family business in the event that divorce is imminent.
Sell the family business
Selling the business may be a solution when both parties agree that continuing the business isn’t feasible. This option involves valuing the business and selling it to a third party. The proceeds from the sale are then (usually) divided between the spouses according to their ownership interests or as agreed upon in the divorce settlement. Selling the business can provide a clean break and immediate financial liquidity.
Close the company
In some cases, the best option might be to close the business. This scenario usually arises when the company can’t viably continue post-divorce. This might be due to financial reasons, market conditions or the inability of the owners to agree on its future.
Closing the business involves settling debts and obligations, liquidating assets and distributing the remaining assets or proceeds. While closing a business can be emotionally challenging, especially for long-standing family enterprises, it may be the most straightforward solution when other options aren’t possible.
One spouse buys the other out
A buyout occurs when one spouse purchases the other’s interest in the business. This option allows the company to continue operating under the sole ownership of one spouse. A buyout can be funded through various means, such as cash payment, property division arrangement or installment payments. The first step in an informed buyout scenario involves accurately valuing the business to better ensure a fair transaction.
Continue to operate the business together
Some divorcing couples choose to continue operating their business together. This arrangement requires a significant level of trust, communication and clear boundaries. While challenging, it can be successful, especially when both parties have a solid professional relationship and a clear division of roles within the business. Continuity can be beneficial for the company, employees and customers.
The family business is only one aspect of property division to consider during divorce. Factoring in how the possible property division options may impact the future can help anyone going through a divorce determine how to proceed more broadly throughout their property division process.