Divorcing with a Family Business: Key Considerations for Preserving Your Wealth

When a family business is involved in the divorce process, the stakes can get very high. Whether it’s a small local business or a larger enterprise, deciding how to handle this shared asset is critical to ensuring the future stability of both the business and the divorcing spouses. In this post, we’ll cover the essential steps you need to take when navigating a divorce with a family business.

Step 1: Valuing the Business

The first, and perhaps most crucial, step is determining the value of the business. This typically requires hiring a professional business appraiser. The appraiser will consider factors such as the business’s income, assets, liabilities, and its future growth potential. This valuation will play a significant role in how the business is divided between spouses.

Factors that influence business value include:

• Annual revenue and profitability

• Business debts and liabilities

• Market trends and competition

• The potential for future growth

Having an accurate valuation is vital because it sets the foundation for the next step: determining how to divide the business fairly.

Step 2: Deciding Ownership

Next, it’s important to determine whether the business is considered marital or separate property. Generally, a business started before marriage may be treated as separate property, but any increase in its value during the marriage could be subject to division. If both spouses contributed to the business’s growth, it may be classified as marital property, and that can complicate things.

Common options for dividing a business include:

1. One spouse buys out the other: This is the most common approach. One spouse retains ownership of the business by buying out the other’s share, based on the valuation. This could be done through a lump-sum payment or a structured payout over time.

2. Sell the business and split the proceeds: In some cases, the best option is to sell the business and divide the proceeds. While this offers a clean break, it can be disruptive for employees, clients, and even your finances if the sale takes longer than expected.

3. Continue as co-owners: This is rare but possible. Some couples choose to continue owning and running the business together, especially if they have a strong working relationship. However, this option requires clear agreements and legal protections in place to handle future conflicts.

Step 3: Consider the Tax Implications

Dividing a business in divorce isn’t just about ownership—it also has tax implications. For example, a buyout could trigger capital gains taxes, while continuing as co-owners could affect future profits. It’s important to consult a tax advisor to fully understand the tax consequences of your decision.

Final Thoughts:

When divorcing with a family business, having the right legal and financial team is essential to protecting both your personal assets and the future of the business. Clear communication, a solid business valuation, and an understanding of your legal rights are the keys to navigating this challenging situation.

If you’re facing divorce and have concerns about dividing your family business, I can help. Contact my office to schedule a consultation, and we’ll guide you through the process to ensure your interests are fully protected.

Contact:
Michele McGill

Family Law & Civil Litigation

615-389-6453