Just as marriage and business often do not mix well, divorce involving a family business can make an already complex divorce process even more difficult and stressful. This is due to the inevitable change in workplace dynamics, complexities in valuation for business division in divorce, stakeholder and employee relations, and many more factors. Here is how divorce involving family business can impact daily business operations, worker morale, value of the business, and more:
Daily Operations
During divorce involving a family business, it is often the case that the business will continue to operate with the intention of the business being sold eventually to either one of the spouses or to a third party. Sometimes, though more rarely, divorcing couples agree to continue working together as co-owners of the business. It is sometimes true that couples who are not good marital partners can, ironically, be good business partners. Again, this is not common.
While continuing to co-own and jointly operate the business could remove it from marital asset consideration and business division in divorce, if the spouses were not truly equal partners in owning and running the enterprise, this should be accounted for during divorce proceedings. Regardless of how continuing operation of the business is managed during divorce, couples should understand that dissolving the marriage can impact the workplace and even make customers uncomfortable. Every effort should be made to keep operations as normal as possible. If that cannot be achieved, it is often advisable for at least one of the spouses to step away from the business pending the outcome of the divorce.
Key Stakeholders and Employees
If the family business has key stakeholders and employees beyond the married partners, dividing, dissolving, or selling the business will inevitably impact their interests as well. For example, the value of stock could go down during the period of divorce due to uncertainty about the future of the business. Conversely, if a business division in divorce requires one spouse to divest shares and helps mitigate perceived operational problems, a subsequent sale could enhance the value. Naturally, this hinges on many factors, so it is wise to seek the counsel of a qualified business divorce attorney to understand rights, restrictions, and consequences.
Employees will almost certainly be affected by the divorce as well. Working in a stressful environment can damage employee morale and motivation. If one spouse quits or steps away from involvement in the business, employees will likely be asked to pick up the slack. In either case, the changing workplace dynamics could lead employees to seek a more stable and friendly workplace elsewhere.
Dissolving the Business
Due to the practical difficulties in continuing to co-own and operate a business after divorce, most divorcing couples choose to sell the business outright. When that happens, it is common that neither spouse will continue to have any further long-term interest or involvement in the company – although sometimes one or more former owners will participate in the operation of the business during a defined transition period.
If the business was formed during the marriage or using joint assets of the divorcing spouses, the business is considered a marital asset. If sold prior to the divorce being finalized, this may simplify (somewhat) the distribution of assets as the true market value of the business has been settled. If the business ceases operations – or continues to operate during divorce proceedings – however, pending a later sale, a proper business valuation is necessary. This will normally be provided by an impartial appraiser, considering primary factors including tangible (physical) assets, intangible property, financial assets and liabilities, as well as verifiable profit and loss data.
Key Takeaways:
Divorce involving a family business doesn’t just impact the divorcing spouses; it creates ripple effects throughout the organization’s stakeholders, employees, and customers as well. Here are some primary considerations regarding business division in divorce:
- If the business was formed during the marriage or using joint assets of the divorcing spouses, the business is considered a marital asset
- Continuing to co-own and jointly operate a business could potentially remove it from marital asset consideration
- Dissolving the marriage can impact the workplace and make employees and customers uncomfortable
- If the business is to be sold, either to one of the spouses or a third party, proper business valuation is crucial and should be done by an impartial appraiser
- Business valuation factors include tangible and intangible assets, financial assets, financial liabilities, and profit and loss
- Stock value of the business could be impacted – positively or negatively – by the divorce proceedings and business valuation
- Because business division in divorce is highly complex, it is wise to engage the services of a reputable business divorce attorney from a firm like Dixon & Moseley
At Dixon & Moseley, P.C., our attorneys bring decades of collective experience helping clients navigate divorce involving family business. To learn more about what happens when you own a business and get divorced – and how to protect your interests – contact us today at (317) 972-8000.
This blog post provides general educational material about divorce involving family business. Being an educated legal consumer can help you make the most of the legal experience in meeting your legal objectives. This information is presented by attorneys at Dixon & Moseley, P.C. who practice throughout the State of Indiana. It is not a solicitation, nor is it intended to provide specific legal advice. This is an advertisement. Information contained herein is subject to change.