How to Handle a Divorce Involving a Family Business

Divorce With A Business Involved

Family businesses make up a major portion of companies that operate out of the United States. According to the Family Owned Business Institute, there are 5.5 million family-run businesses in the U.S. alone. These operations employ 63% of the nation’s workforce as well, making them a key element of the nation’s economy. Despite this, however, disruptions within the family unit – such as a divorce – can quickly throw these profitable businesses into turmoil. Having an experienced family lawyer with an understanding of how to handle divorces that involve a family business and its assets can help keep the business afloat during this transitional period.

Divorce and Family Business Operations

Getting a divorce is difficult enough on its own, as many different aspects need to be taken into account, including assets, children, and finances, among others. Dealing with these important life issues along with a family business can seem nearly impossible. Ultimately, each party must determine their intentions for potential ongoing involvement in the business, as well as the best way to divide the business financially. In order to make this process as smooth as possible, the following items should be considered:

Review Existing Prenuptial Agreement

When considering a divorce that involves a family business, any existing prenuptial agreement should first be taken into account. In the event the business began before the marriage, a prenuptial agreement might specify what will happen to the company in the event of a divorce. When executed properly in writing before witnesses, a prenuptial agreement can be enforced as an ironclad contract.

Those who choose to forego prenuptial and/or postnuptial agreements can choose to set up a buy-sell agreement to protect a family business from collapsing due to divorce. This agreement – also referred to as a buyout agreement – is a contract between business co-owners that governs the business in the event one co-owner dies, is forced out, or chooses to leave the business. With regard to divorce, a buy-sell agreement would require a former spouse to sell any interest received back to the company owners at a specified price.

Use Trusts to Protect Generational Wealth

Another important item to consider when going through a divorce involving a family business is the use of trusts. Trusts can be used as a means to protect family business assets in the long term and shield them in the event the next generation goes through a divorce.

For instance, if a parent makes a gift to their child in family business stock, this can be put into a trust that benefits only the child. In the event the child later marries and goes through a divorce, their spouse will not have access to the funds within the trust as long as the gifted stock stays within the trust. This method is often favored in high net worth situations.

Consider Keeping Business Relationships

Arguably, the simplest way of structuring a family business after a divorce is for the spouses to continue their business relationship despite ending their marriage. While this option won’t work for every couple – especially those in more antagonistic situations – it can allow for a much easier transition.

When deciding whether to keep the business relationship intact, it’s important to have a shareholder or buy out agreement drawn up. As previously mentioned, this gives either spouse the right to buy the other out at a mutually agreeable price; however, the ultimate value of the business should first be professionally evaluated.

Consider Selling the Business

While this can be difficult for some to consider, the option of selling the family business following a divorce is a viable option to split the profits in a more straightforward resolution. In the event the family business happens to be the largest component of a couple’s assets, selling it could be the only viable option.

If the business sells quickly, both parties will then have the funds to pursue other business dealings. Additionally, selling the business allows for individuals to sever financial ties with their former spouse; however, in the event the business is not easy to sell, this could result in ex-spouses continuing to work together for several months or even longer.

Brazoria County Divorce Attorneys

Making the decision to move forward with a divorce is difficult enough on its own. When this decision is intertwined with a family business, it can make for an incredibly complex process that will require the insight of an experienced family law attorney. At Terry & Roberts, our Brazoria County divorce attorneys work with our clients to establish divorce goals and reach the best possible outcome for those involved. If you are considering a divorce that involves a family owned business, contact the attorneys at Terry & Roberts today to discuss your needs.

Share This Artcle :

See how we can helpContact Us

Call TODAY!979.849.4387