Separating Personal and Business Helps a Family Company Weather Divorce

Millions of small businesses across the U.S. are family owned. The term “copreneurs” is a recently created buzz-word that describes couples who work together to build a company. According to the Census Bureau, 3.7 million small companies are owned by married couples.

When a marriage relationship breaks down, the business does not always survive the divorce. Complex property division in the divorce may change the management structure or require the sale of the business. In bitter divorces, one spouse may stop caring whether the company succeeds and it may slide toward bankruptcy.

National Public Radio reported recently on couples who found ways to continue their business relationships long after the marriages had ended. One woman found that her ex-husband’s marketing skills were well suited for her public relations firm. They were able to run the business together and found their relationship had never been better.

Couples who stay in business together after a divorce tend to be able to compartmentalize between their personal and professional lives. While infidelity may have destroyed trust in the marital relationship, it might not affect trust related to client development or business acumen.

It is generally more the exception to continue in business after the emotional trauma of the divorce process. Feelings left raw from a contentious property division may creep up in petty ways around the office. Seeing a former spouse with a new significant other may lead to awkward encounters. Staff may have loyalties to one or the other spouse.

Often one of the most valuable assets

The business frequently is one of the most valuable assets a family has and generally also provides the main stream of income. The equity in a business is not usually a liquid asset. If one spouse wants to keep the business, a buyout might be necessary. Awarding a larger portion of retirement accounts, home equity or a business loan could fund the buyout.

Similar to any other property, it is important to reach a fair valuation. Even a spouse who was involved in the day-to-day running of a business may not know the value of the company. It is often necessary to seek the assistance of a financial expert.

It is important to make sure that a “double dip” does not occur. For instance, it might not be fair for a spouse to receive a lien against business assets and also spousal maintenance if the assets are to be liquidated rather than continuing to provide one spouse an income. On the other hand, a reasonable salary might need to be carved out of income streams to reach a proper valuation. In that case, asset distribution would not duplicate maintenance.

While you may not be able to continue a business relationship with your ex-spouse, divorce does not need to destroy a business you worked hard to make successful. The issues involved with dividing business equity are complex. An experienced family attorney can assist with negotiations and help you reach a workable solution.