Certain unique circumstances can seriously complicate divorce proceedings. The more entangled the lives and finances of the spouses, the harder it may be to gracefully divorce. Few financial decisions enmesh married couples more than the decision to own and run a business together.
Maybe they started a franchise restaurant as a way of working together to support their family. Maybe they met in medical school and decided to start an independent practice together. When divorcing couples have a business in addition to a family to address, the divorce process can become very acrimonious and complicated. Business owners contemplating divorce or responding to a spouse’s filing may need help understanding how to protect themselves and the company throughout the divorce process.
What issues do business-owning spouses typically need to consider as they prepare for divorce?
Is working together still an option?
The divorce of business owners can have a profound negative impact on company operations. Spouses might scale back how much effort they make. One spouse might embezzle or talk negatively about the other to employees, vendors or even clients.
The tensions between them can also cause emotional stress and job performance issues for other employees. Clients and customers who are aware of the impending divorce might even take their business elsewhere because they don’t want any part of the upcoming drama.
Spouses who own a business together often have to think about the situation carefully to determine if they can still work together. If they intend to continue jointly owning the business, then they very likely need to negotiate thorough contracts establishing clear expectations and protecting the business.
Can one spouse buy out the other?
When business partners choose to stop working together, a partnership buyout is usually what happens next. One party retains ownership of the business, while the other seeks outside employment. In a divorce scenario, the exiting spouse may also request a share of the business’s equity during the property division process.
Proposing a buyout typically requires a realistic business valuation. The spouse keeping the company may need to make concessions in other aspects of the property division process. There can be many challenges to address, including whether to continue the employment of professionals who may have greater loyalty to the exiting spouse than the spouse retaining the business.
The loss of the services provided by one spouse may make hiring another professional a necessary step. The type of business, the way that spouses assumed ownership and the status of their marriage currently are all key considerations when developing a plan to protect the business and divorce successfully.
Obtaining assistance when preparing for divorce as a business owner can help limit the likelihood of devastating financial setbacks. When spouses who own businesses together divorce, they typically have many challenging discussions ahead before they can complete the divorce process, and seeking legal guidance is a good way to get started.