How a Divorce Can Affect Your Family Business

Family-owned businesses are, for many, embodiment of the “American Dream.” Opening a company with the intention of passing it down for generations to come can be both exhilarating and highly profitable. There are, however, certain events that could throw the proverbial wrench into the gears of your long-term plans, and some are not even business- or industry-related.

As a business law attorney, I understand that a divorce between spouses who own or run a business together can be spell major trouble for the company. Due to the complex nature of the proceedings, it is important to have the advice of legal and financial professionals so any division or modification of the business goes as smoothly as it should.

Valuing the Business

There are essentially three choices for most couples in terms of what to do with a co-owned business: to continue operating it together, to have one spouse buy the other out, or to close it down. Deciding what to often depends on the type of business and the nature of the role each spouse fills within it. For example, if one spouse is the secretary for the other spouse, it may be easier to buy them out than it would be if both spouses worked specialized jobs—two licensed real estate brokers in one firm, for example.

Regardless, if the business is going to be split or sold off, an impartial valuation is critical. Neutral appraisers are most commonly used, and while the temptation for both spouses to have the business evaluated is great, it most often winds up being a waste of money. The American Institute for Certified Public Accountants (AICPA) offers training for CPAs regarding how to evaluate businesses, but any neutral appraiser is recommended. An appraiser can also advise if choices like consolidating your business to free up liquid assets are possible.

Who Gets What?

For most couples, their co-owned business is likely their most valuable asset. As such, if one spouse is going to walk away from the divorce with the business, the bulk of the marital assets will likely go to the other. Many couples have language in their articles of incorporation or in their prenuptial agreement that articulates how the business should be disposed of in the event of a divorce, and a court will usually go along with such provisions unless they are clearly unconscionable.

It is important to remember that, even if the buyout or divorce does not go as planned, the needs of your business must come first. If your mind is occupied with the stresses and anxieties of the proceedings, your business decisions could be compromised. Keeping focus is paramount in such a tumultuous time in your life; your business will fare better.

Contact a Hoffman Estates Business Law Attorney

Business valuation and partition is not something the average person can or should do on their own. An experienced Naperville business law attorney from our law firm can provide the guidance you need for your company before, during, and after your divorce. To learn more, call 630-756-1160 for a confidential consultation at the Gierach Law Firm today.

Sources:

American Institute for Certified Public Accountants

American Bar Association

CBS News