Family businesses often at risk when their owners divorce

This article looks at how the role of each spouse in a business determines the business’ fate in divorce.

Divorce often feels like an upheaval for those going through it, both emotionally and financially. For small business owners-especially those who are in business with their spouses-the economic implications of a divorce are especially profound. Put simply, when spousal owners of a business decide to part ways in their personal relationship, their business relationship is likewise almost guaranteed to suffer (and usually end as well). For many people going through a divorce, a pressing question is what should they do with their family business?

Options depend on each spouse's role

As CBS News reports, there are approximately 3.7 million businesses across the United States that are jointly owned by husband and wife teams. However, the level of involvement of each spouse in those businesses varies greatly, which is an important point to keep in mind since the spouse's role in the business will largely determine that business' fate during a divorce.

For example, in some cases it may be impossible to separate either spouse from the business. If the spouses run a dentistry clinic, for example, and they both work as dentists at the clinic, then chances are that for the business to survive, both spouses will need to continue to agree to keep working together as business partners. Given that the chances of that happening are usually slim, the more realistic approach is to simply sell off the business and to split the proceeds between the two spouses.

Buying out the other spouse

What more commonly happens, however, is that one spouse's role in the business can easily be outsourced. For example, returning again to the dentistry clinic example, instead of both spouses working as dentists, let's imagine that one spouse is a dentist while the other spouse takes care of the bookkeeping. In this case, the role of the spouse who does the bookkeeping can easily be replaced. In such a situation, it is more common for one spouse to buy out the other spouse's share in the business.

However, buying out another spouse from the business does present its only challenges. As Fox Business reports, in a buyout situation, both spouses will have to agree on what the business is actually worth. For obvious reasons, it is common for there to be serious disagreements concerning this issue. Negotiating a business valuation will be an important step in the divorce process.

Help from a family attorney

There is little doubt that for family business owners, divorce is an especially painful and frightening experience. However, no matter how daunting the prospect of a divorce may seem, a family law attorney can help clients navigate their way through it. By talking to an attorney today, those going through a divorce will have an advocate on their side to help ease them through what can often be an overwhelming and confusing experience.