When Couples in Business Together Divorce

Couples who are in business together have unique challenges when it comes to negotiating the terms of their divorce. Not only must they decide how to split personal assets and liabilities, but they must also figure out what to do with the business.

Use divorce Mediation or Collaborative Practice (CP) rather than costly litigation.

Hiring a divorce Mediator or Collaborative Practitioner to help work out business dealings will ensure that both spouses have more of a say in the matter than if a Judge were solely to decide the outcome.

The advantage of the Mediation or CP process is that it provides resources to help both spouses get on the same page. A financial advisor working in either process will have a neutral perspective when informing both parties of all financial aspects that must be considered and should be privy to all relevant information needed to help the parties make informed decisions.

In litigation, each party typically has his or her own financial advisor, and therefore one may be privy to information that the other is not. Litigation typically drains resources, increases animosity, and reduces the likelihood of resolving the situation to everyone’s best interest. The end result tends to be a win/lose scenario.

Make sure both spouses know the financial side of the business.

The practical division of labor involved in running a business often means that one spouse handles the technical side of doing the actual work, while the other takes care of customer service, inventory, sales, or bookkeeping. Before going to Mediation or CP, it is critical that both parties become fully informed about the current financial state of all business affairs so they can make educated choices.

Make a decision together as to the future of the business.

A divorcing entrepreneurial couple has several different options as to what to do with the business. One spouse can buy the other out, or the business can be sold or even closed. If there are other partners involved, both spouses may want to sell their share in the business. Non-competes may become a factor.

One possible arrangement, especially if a business is about to make it big or is already successful, is for one spouse to remain a silent partner. This allows him or her to reap a percentage of the profits for a period of time to recoup any initial investment.

Occasionally one or both spouses may want to continue working together as business partners even once their marriage breaks up, but it takes a certain personality to make that arrangement work.

Use a business attorney to enact any necessary legal changes to the business structure.

If the future of the business requires a change in business structure (i.e., breaking up a partnership), a separate business attorney will need to get involved to make sure the correct legal proceedings are carried out. The business owners will also need to follow up with their tax advisor or accountant.

Realize that personal and professional lines can become blurred.

Divorce for couples in business can be more complicated and emotionally charged, especially if this was a family business built by both spouses. A divorce coach can help diffuse some of the emotion.

The goal should be to do what makes the most sense for everyone financially. This requires separating the personal emotions of a divorce from practical issues. If the plan had always been to pass the family business along to the children someday, both spouses will have to figure out a way to keep the business in the family in a way that is equitable to all involved.

While self-employed divorcees will have more issues to address, the challenges are not insurmountable with the help of a good divorce Mediator or CP.