Will I Need to Shut Down My Family Business When I Get a Divorce?

 Posted on May 23, 2023 in Divorce

Getting a divorce can often be a difficult process, and if you are planning to separate from your spouse, you will need to be aware of the various legal and financial concerns that may affect your case. Some of the most complex and contentious issues to address will be related to your marital property. As you work to divide your assets and debts between you and your spouse, you will need to consider multiple types of financial factors in order to ensure that the decisions you make will protect your interests and allow for your ongoing success. These issues can be especially complicated if you are a business owner, and you may worry that your divorce could lead to the end of your business and significant financial difficulties. By understanding how issues related to your business may be handled during your divorce, you can take steps to negotiate agreements that will provide for your ongoing needs.

Is a Family Business a Marital Asset?

The first issue to address is whether your family business is an asset that you and your spouse own jointly or property that you own separately from your spouse. Marital property, which is also known as community property, consists of any assets or debts that either you or your spouse acquired while you were married. There are a few exceptions, such as property that was inherited by one spouse. However, if your business was founded or acquired at any time after the date of your wedding, it will generally be considered marital property. This means it will need to be considered as you divide assets and debts with your spouse.

On the other hand, if you owned a family business before you and your spouse got married, it will usually be classified as separate property, and you will be able to continue owning the business without being required to divide it with your spouse. However, some disputes may arise about whether your spouse made any contributions to the business, such as by investing marital funds in the company in order to purchase new equipment or expand operations. If your spouse helped the business increase in value during your marriage, you may be required to pay them back for any contributions they made and ensure that they are fairly compensated for their investments of money, time, or effort.

Regardless of whether your business is community property or separate property, you will most likely need to perform a business valuation during your divorce with the help of appraisers or other financial experts. This will make sure both parties fully understand the monetary value of the business and the continuing benefits or drawbacks of business ownership. There are several methods that may be used to value a business, including adding up assets and subtracting liabilities, reviewing past revenue and potential for growth, or comparing the business with other similar companies that have been sold recently. A valuation may also consider factors such as the "goodwill" of the business and the value you bring to the company through your reputation and your relationships with clients, employees, and the community as a whole.

Addressing Ownership of a Marital Business

If your business is marital property, it will be considered to be jointly owned by you and your spouse, even if only one of you has been involved in making business decisions or overseeing business operations. Because of this, the business will need to be considered as you determine how all of the assets and debts in your marital estate will be divided.

If you are looking to avoid the closure of your business, you will generally have two options: either you can divide marital property in a way that will allow you to retain sole ownership of the business, or you and your spouse can agree to co-own the business and continue working together as business partners after finalizing your divorce. If you will be the sole owner, you can make sure your spouse will receive other marital assets of the same value, and if this will not be possible, you may agree to set up an ongoing payment plan in which you can buy out their share of the business over time. If you opt for co-ownership, you will most likely need to establish a partnership agreement that fully details the rights and responsibilities of each party, ensures that you will be able to resolve any partnership disputes that may arise in the future, and gives you the option to buy out your spouse's share of the business in the future.

If continued ownership of the business will not be possible, you may choose to sell the business during your divorce. This will allow you and your spouse to divide the profits earned from the sale and use these funds to meet your needs and pursue other opportunities in the future. However, if the business has significant value, it may be challenging to find a buyer, especially if there are intangible factors such as your personal relationships and knowledge of business processes. Moreover, there may be tax implications associated with the sale of the business, as well as other legal and financial concerns, so it is crucial to work with financial professionals to make sure all aspects of the sale will be handled correctly.

Contact Our Bexar County Property Division Lawyers

As you proceed with the divorce process, a skilled family law attorney can answer your questions and address your concerns about how your family business will be affected. At Brandon Wong & Associates, our San Antonio asset division attorneys can advise you of your options and help you negotiate agreements that will protect your financial interests. Contact us at 210-201-3832 to discuss these issues in a consultation and learn more about how we can assist with your case.

Sources:

https://www.forbes.com/sites/catherineschnaubelt/2019/03/15/how-to-divide-the-family-business-in-a-divorce/

https://www.smbceo.com/2019/11/19/how-to-value-a-small-business-for-divorce/

https://www.nfib.com/content/resources/legal/a-small-business-owners-guide-to-divorce/