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What Happens With a Family Business in a Divorce?

Family businesses are normally owned by both spouses, so when a marriage breaks up, it puts the state of the business in limbo. This can be especially worrisome in situations where income from the business is the main thing fueling the family's livelihood. The break-up of a marriage is one thing, dissolving a business is another, and just because there is a divorce it doesn't mean the business relationship has to be over. It all depends on the nature of the business and each person's ability and willingness to look at the business relationship as something separate from the personal relationship. Depending on the specific situation, there are generally three options:

  • Continue to run the business together as partners
  • One spouse can "buy out" the other's share in the business and run it by themselves going forward
  • The business can be dissolved or sold to a third party, and its value split, just like the other marital assets.

The option of keeping the business going may be appealing to couples who can truly put their personal issues aside. If their soon-to-be ex also continues to share the passion for the business, the divorce may actually renew that focus. By keeping the business as is, and sharing ownership 50/50, an exact assessment of the business value does not need to be done, and the business can continue to grow in value for future generations.

A buy out is an option when one or both spouses feel strongly about keeping the business running and in the family, but the spouses no longer feel comfortable working with one another or one prefers to pursue other things. If this is going to happen, the actual value of the business will need to be determined so that a fair negotiation can take place. If the business, a marital asset, is turned over to one spouse, to maintain a sense of fairness, that spouse will most likely need to give up another marital asset of equal value, such as equity in the home, motor vehicles, or retirement account money.

Some couples come to the mutual conclusion that the business was an extension of the marriage and they do not want to continue either together or alone. If they decide to sell the business, it should be assessed in order to determine its value. Once it is sold, this piece of marital property becomes a check, which can easily be split in half without a continued need to work together beyond the time it takes to sell.

Whatever you decide to do with the family business, it will undoubtedly have a big impact on your future. A good family law attorney will be able to discuss the pros and cons and help you choose the most appropriate option for your situation.