A family business is often more than just a source of income. It’s a labor of love, a shared dream and sometimes even a legacy passed down through generations. When the owners of a family business go through a divorce, the emotional and financial stakes are extraordinarily high.
The impact of the separation not only affects the couple but also extends to the employees, stakeholders, and the overall sustainability of the business. The employees may start worrying about job security, and stakeholders may question the business’s stability.
Navigating through a divorce while keeping a family business intact is no easy feat, but understanding the potential consequences can prepare everyone involved for the challenges ahead.
Dividing assets becomes complicated
One of the first issues to arise during a divorce is the division of assets. A family business is a significant asset. Depending on the circumstances, the company might be considered marital or separate property. This distinction can significantly affect how the business is divided or valued for asset distribution. Even if one partner primarily managed the business, the other might still be entitled to a portion of its value.
Co-ownership or buyouts are options but have drawbacks
In some cases, ex-spouses choose to continue running the business together. While this can maintain operational continuity, it requires a strong working relationship separate from personal conflicts. Alternatively, one spouse might buy out the other’s share of the business. However, buyouts require liquidity and can strain both parties financially, depending on the terms.
Having the fate of the company clearly defined in writing is critical. If exes opt to continue running the business together, having the roles and responsibilities set clearly is beneficial.
