Divorce and The Family Business

A client asked the other day how to handle the family business in their divorce. They had heard business valuations were very expensive – approximately $20,000.00 – and they were hoping for another way. As it happens, quite a few of my divorce mediation couples have family businesses, so this discussion comes up often. There are many different ways to handle the family business during divorce. Here are just a few options my clients have chosen:

  • Buy out the other person. Typically both meet with their financial advisors and accountants and come up with a good faith value for the business and one buys out the other for a percentage based on the other considerations and divisions of the community assets.
  • Sell the business. This is not a popular option as usually one or both people are reliant on the business for their livelihood and often need the ongoing revenue to continue to pay for living and family expenses.
  • Continue to co-own the business. This has actually been a popular option where couples are both interested in continuing to grow their “baby” together and feel they can work together amicably for common purposes. The important part of this option is making sure that the operating agreements and other corporate documents are revised to spell out the specifics of each person’s role, interest and plans for future buy-out or sale.
  • One person owns the business and “hires” or contracts with the other as an employee or contractor for a certain negotiated salary and/or benefits. This is a less popular option, but has been utilized where one person only wants a minor interest in the business and/or benefits in return for other considerations in the divorce agreements.
  • Close the business. In some cases, the business is just a liability and does not have any value or potential future value. In order to avoid future exposure, couples may choose to close down the business.

So, divorce does not necessarily have to mean the end of a family venture. A nice thing about mediation is that it keeps the dialogue open between the couple and allows for the greatest flexibility in pursuing the best options for the success and outcome of the family business.