How To Handle Divorce In A Family Business

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In the modern, digital era that we live in, the divorce rate is increasing continuously. This issue occurs especially in Western countries, but the entire world is currently facing this problem. And as if the idea of the divorce wasn’t bad enough, imagine what happens when the couple that is going through that divorce runs a business together.

In this article, we’ll discuss the complex process of divorce, focusing on aspects regarding a shared business between the divorcing couple. What does it happen to the family business? Who gets what? How much?

divorce in a family business

Trying to Work Together

First and foremost, let’s talk about that awkward situation when the separating couple tries to continue running the business together. Sometimes, but not very often, this situation might work and it’s definitely very convenient, as you don’t have to go through all the legal processes involving your business. Unfortunately, most times, the divorce is affecting spouses to the point where they bring their own problems at work. When something like this happens, the business will definitely be affected, the employees will suffer from this, so obviously, the business will slowly go down.

Buyout

One of the most common solutions is for one of the spouses to buy the other spouse’s part of the business. Of course, it is extremely hard to agree on something like this, but at the end of the day, you kind of have to do it. You’ll need to separate from the idea of the divorce for a second and become kind of like business partners. Establish some boundaries and get in contact with a certified value analyst. Things work out smoother if you argue less.

Sell Everything

There is that one situation that nobody wants to be in, where the spouses can’t agree on anything at all. Well, in that situation, there is one thing left to do: sell the business. Best practice is to try and resolve things using collaborative law,  according to Erlich Law Office, LLC  this is “an alternative to traditional divorce proceedings that focuses on civility, privacy, and long-term cooperation in an effort to avoid adversarial divorce litigation and reach a mutually-agreeable settlement”

Dividing the Business

You can’t work together, but you also can’t sell the company. One of the spouses doesn’t have enough money in order to buy out the other, or the other does not want to be bought out. What do you do? Well, there’s one more solution: split the business into two different companies. Each company will be owned by one of the divorcing spouses.

When it comes to the legal terms, tax implications and splitting processes, this solution is by far the most complicated one. Also, you have to be aware of the fact that this case scenario is not always doable, given the fact that you kind of have to own a business that runs on multiple divisions or different units that can be run separately.

No matter what to do, a divorce will always be hard on you, on your ex-wife/husband, and even on the business that you run together and its employees. What you need to bear in mind is that if you try and handle the divorce in the most respectful manner possible, your business might suffer less.

Ryan Yarbrough is a small business consultant, speaker, and the manager at Davis Financial Services, a small business consulting firm.

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