Family Business Options When Dealing with Divorce
If you co-own a family business with your spouse and you are facing divorce, a likely concern is how your business will be handled through the separation proceedings.
The good news is, it’s really all up to you. And, so much of it depends on the legal counsel you have representing you.
Much of how this situation is handled depends on your desires and your ability to work together, so make sure you find a lawyer who is committed to supporting both of you to get what you want, rather than who is focused on a win/lose paradigm that will simply end up costing everyone more and only making your legal team rich.
Your divorce can either be seen as a huge opportunity to uplevel your business or it can be a time to walk away and let go, knowing that you can start over and create something new on the other side.
That said, there are three main options available to you: continue to own the business together, allow one owner to buy out the other, or sell the business.
If your dissolution or legal separation is amicable, you communicate well, and you fundamentally trust each other, you may decide to continue co-ownership of the family business together. Some couples split duties, allowing one of the partners to manage the business while the other acts in an administrative role or even steps out of the operations altogether, and receives dividend payments based on company profits. Significant benefits to continuing co-ownership are that neither partner is divested of his or her interest and, in most cases, complicated business valuations are avoided.
The remaining two options—a buyout and a sale—would both necessitate a valuation of the business.
Business valuation establishes the fair market value of the business for the purpose of defining the marital estate. You need to know the value either to divide the business or to establish a selling price.
If you decide to go this route, contact us so we can make a referral to a business valuation expert we trust. It is important to use a professional who is familiar with businesses in the same general industry as yours and, if possible, agree on a single shared evaluator as dueling experts– situations in which each party hires his or her own expert–are not uncommon in this area and can get expensive.
After the valuation, one spouse may buy out the other, or you may decide to have a business broker sell the business to an entirely new third party and split the proceeds of the sale.
Here’s the key: make sure you are working with legal counsel who is focused on a win/win/win outcome that doesn’t just consider how you can get as much as possible, but who focuses on the best possible outcome for all involved, including you, your spouse and the company as a whole.
Taking an approach that is focused on how much you can get will ultimately mean less for everyone because you’ll spend far more on valuations and legal fees when you could be using that capital to create more overall wealth for you, your spouse and the company and be splitting an overall bigger pie than what will be left after you try to take a bigger piece.
If you are married, and working together, and considering divorce, contact us before you contact litigation counsel. If we cannot help, we will refer you to divorce counsel we trust to support the most efficient, life and business enhancing resolution and you’ll save a tremendous amount of time, energy, and money in the process.
This article is a service of Kundani Chang Khinda Wilson LLP. One of our primary services is to assist not only with estate planning but to advise business owners in making the right legal and financial decisions so that they save money in the long-run and avoid the unnecessary costs of litigation. We advise our business clients on a whole host of issues, including guiding them through the right choice of business entity, location of business entity, start up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems that you need to start your next business and succeed right out of the gate. Many of our business clients are on our membership program, where they save money for monthly legal counsel consultations. Call us today to schedule a time to get started!