What happens to your business if you get divorced?

Everyone enters marriage with the hope and even expectation that it will last forever. Unfortunately, the reality in today’s society is that about 50% of marriages will end in divorce. A divorce is unpleasant and messy for anyone, but it can be especially so for a business owner. In divorce cases where the parties own a business that is subject to division things can get complicated in a hurry.

Use of a Pre Nup Agreement to Protect the Business 

It is possible for you to enter into a Pre Nup (premarital agreement) that would exclude a business that you own before marriage from consideration in any later divorce and property division. For those business owners who are considering marriage this would definitely be a worthwhile topic to discuss with a competent family law solicitor. This is a useful way of seeking to avoid future disputes concerning your business but the law is complex and you will need advice.

How Will the Value of the Business Be Determined? 

In most cases, one party will be awarded the business and the other party will be bought out. In these scenarios often the biggest issue in the case is what the value of the business is. Unlike houses, pensions or vehicles, valuation of a business is a relatively inexact science. The nature of most small businesses makes them often difficult to sell and there is no ready-made database of “comparables” to look at as there are with residential homes.

Consequently, in cases where the business is of substantial potential value one or both of the parties may hire a business valuation expert to prepare an appraisal and report for use in the litigation. Potentially this expert may also appear in the case and give evidence at the final hearing about their opinion as to the business value.

While business valuation experts have certain criteria that they use in reviewing a business and calculating its value (primarily based on review of historical financial data), all business valuations are by their very nature speculative. The only true way to find out the worth of a business is to actively market it and determine what a willing buyer would actually pay. Since this is usually not practical (unless the parties are actually trying to liquidate the business), a valuation expert is the next best thing.

Can the Parties Divorce and Still Be Co-Owners? 

Occasionally a couple run a business together and, while they are good business partners, they are not good marriage partners. In those circumstances where both parties are integral to the success of the business they may both want to continue running the business together, even after they are divorced.

With the right personalities it can work. But before going down this path both parties need to give serious consideration as to whether this is a practical solution. An example where it would not work well would be where one spouse doesn’t really want the divorce and sees co-ownership as a way to stay connected to the other spouse and even potentially reconcile at some point in the future.

In all likelihood this situation would worsen if and when the other spouse decided to move on with their life and perhaps began a new relationship. In a situation like this it is far better to simply determine a value for the business and work out a buyout arrangement.

Divorcing as a business owner is certainly more complicated than the typical divorce and a situation where you definitely want to obtain an experienced, competent local divorce lawyer to advise you on your options.