What happens to your family business when you divorce?

On Behalf of | May 20, 2019 | Family Law |

If you and your spouse own a family business in Virginia but have decided to divorce, what happens to this business?

Forbes reports that you have the following three basic options when it comes to deciding what to do with your family business during a divorce:

  1. Sell it
  2. One of you buy out the other
  3. Both of you continue owning and operating it after your divorce

As you might expect, each option presents advantages and disadvantages

  1. Sale

If you and your spouse both want to walk away from your business and obtain reasonably quick cash with which to do other things, a sale may be your best option. Keep in mind, however, that in order to sell it and fairly split the proceeds between you, you must first establish the business’s overall value, the value of your respective shares, and a realistic selling price. Also keep in mind that how quickly you can sell undoubtedly depends on how robust your local commercial real estate market is.

  1. Buyout

If one of you wishes to keep the business but the other wants to sell, perhaps you can compromise with a buyout. Here the spouse who wants to stay buys out the share of the one who wants to leave. A buyout once again necessitates determining the value of the business and the value of each spouse’s share. Then the staying spouse must decide how to pay or otherwise compensate the leaving spouse. Generally, this occurs in one of the following three ways:

  1. The staying spouse gives the leaving spouse sufficient nonbusiness marital assets to equal his or her business share value.
  2. The staying spouse obtains a new business partner or venture capital sufficient to pay the leaving spouse.
  3. The staying spouse obtains a business loan, the proceeds of which go to pay the leaving spouse over an agreed period of time.
  1. Continued joint ownership

If you and your spouse both love the business, work well together, and believe that you can successfully continue to do so even after your divorce, then maintaining the business status quo may be your best option. Experts strongly recommend, however, that the two of you draw up a partnership agreement whereby you agree not only on the percentage share each of you owns, but also on the buyout amount and procedure in the event one of you decides to leave the partnership in the future.

Unfortunately, divorce always proves to be a stressful time for both spouses. If you and yours own a family business, this adds another level of complication and possible area of stress and disagreement.

This is general educational information and not intended to provide legal advice.