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3 things to know about small businesses during divorce

On Behalf of | Dec 5, 2023 | Divorce |

Family-owned businesses are often a source of pride for the owners because of the hard work that goes into building a company from the ground up. If the owners are spouses and they choose to divorce, the business can suffer significantly if things aren’t handled properly.

There are several things that individuals must consider if they’re going through a divorce that involves a family business. These are a few of the most pressing.

Timeline matters

One concern that can affect the outcome of the business is when the company was started. If the company was created before the marriage, it might be the original owner’s property. There are strict terms that must be followed if this is what’s happening with the business. The presence of a prenuptial agreement can also impact what happens.

Companies that are started after a marriage begins are typically marital property. This means that interests in the company will likely be split between the owners. This can be a complex undertaking, so it must be considered carefully.

Business valuation is important

If the company is going to be sold or if one spouse will buy the other out, the business must go through the valuation process. Once the valuation is completed, there’s a basis for how much the company will sell for or the buyout from one spouse.

A professional must do the valuation because it involves more than just looking at profits. Future projections must also be considered, for example. The individual handling the valuation will go through all the company records to determine an accurate value.

Co-owning might be possible

Some exes can continue to run their business together. This requires stringent guidelines that must be made clear in writing. This effort should address each person’s responsibilities, how profits will be split, how expenses will be handled and what happens if there’s a disagreement.

Business owners going through a divorce must ensure they’re considering the fate of their business and their personal future simultaneously. Seeking legal guidance as proactively as possible can be beneficial accordingly.