Understanding Divorce Impacts on a Family Business
Divorcing couples should have an understanding of their options when it comes to dealing with the business side of their divorce.
Divorce is often complicated, with many layers of emotions, concerns, and even relief. At its core, divorce deals with the legal and financial split of two individuals. As such, their assets, including any family businesses, must be dealt with before the divorce can be finalized. Unfortunately, having a family business can make a divorce even more complex. Therefore, each spouse should have an understanding of their options when it comes to dealing with the business side of their divorce.
Is Your Business Marital Property?
Before deciding what should be done with your business in your divorce, you need to know how the court views your business. In other words, is it marital property? Courts consider a wide range of factors when making such a determination, including:
- If the company was started before or after the marriage occurred.
- The source of funds used to acquire a business if it was acquired after the marriage.
- If the business’s value increased during the marriage – companies that increase in value over the course of the marriage might have marital equity.
- The monetary contributions and personal efforts provided to the business by either spouse during the marriage.
- The current value of the business and any assets it holds.
The next step is to obtain a business valuation. You need to know what your business is worth before you make an informed decision about what should happen to it in your divorce. Sometimes divorcing couples can agree on the value of their business, but many others won’t. Disagreements over the value of a company are common. Since private firms aren’t publicly traded, assessing their value isn’t easy. You will likely need not only the expertise of an experienced divorce lawyer but also an independent qualified valuation professional, such as a:
- Accredited Senior Appraiser (ASA)
- Certified Business Appraiser (CBA)
- Certified Public Accountant (CPA) with an Accredited in Business Valuation (ABV) designation
Options for a Business in a Divorce
The good news for a divorcing couple who own a business is that there are a few options. Each spouse should carefully consider these options and how they will impact them moving forward:
- Offsetting the value of the company by other marital property — for instance, one spouse gets the family home, and the other spouse receives the business.
- Selling the business entirely so that neither spouse remains an owner.
- One spouse buys out the other. This is the most common option. For example, suppose the business was valued at $1 million. In that case, one spouse would pay the other $500,000 and then own the business in its entirety.
- Remaining co-owners of the business. While this is the least common option, some amicable couples can successfully still own a business together after dissolving their marriage.
- You or your soon-to-be ex-spouse sell your share to an investor. The remaining spouse and investor would then own the business together.
Why It’s Important to Work with an Experienced Divorce Attorney
Some divorces are more complex than others and therefore demand the expertise of legal counsel. If you and your spouse own a business and are going through a divorce or are considering one, it’s essential that you work with an experienced divorce attorney. More specifically, you want an attorney with knowledge and personal experience helping spouses navigate the outcome of their business during a divorce. It’s imperative to ensure that your business is correctly valued and appropriately categorized. With a seasoned attorney on your side, you can make the best decisions knowing you are aware of all potential options.
In practice for 30 years, April D. Jones is the founder and CEO of the Jones Law Firm, PC. Leading a powerhouse team of practitioners that have helped thousands of families and individuals through high-level family law legal services, Jones was recently awarded the Individual Inclusiveness@Work award by The Center for Legal Inclusiveness (CLI).
Jones leads the Sam Cary Bar Association in a second term as President (2005 and 2021). She obtained her Bachelor of Arts degree from the University of California at Berkeley, and earned a Juris Doctorate from the University of California, Hastings College of Law. Jones is a member of the California State and Colorado State Bars and is a 2021 recipient of the Denver Business Journal “Outstanding Women in Business Award.”