What Happens To A Family Business After A Divorce?

Divorces are messy enough when the spouses have separate jobs. When a family business is involved, all kinds of complications can arise both in the divorce proceedings and in the continued operations of the business. Here's what will happen to a family business after a divorce.

Who Gets to Keep the Business?

Continued ownership of the business will depend on whether it was formed before or after the marriage.

If the business was formed before the marriage and the other spouse only worked in it as an employee, the spouse who owned the business before the marriage would keep the business as their individual property. It would not be counted in divorce proceedings.

If new business investments were made using marital funds, that would turn the business into marital property and it would be divided in the divorce proceedings.

If the business was formed after the marriage, it would also be considered marital property and divided in the divorce proceedings.

How Is The Business Divided?

Just like any other marital property, the business would be valued based on its current assets and future potential of generating income. It would then become part of the marital property pool that would be divided equally between the spouses.

If the spouses had assets far in excess of the value of the business, they might simply decide that one gets to keep the business and the other gets more of something else. If the business is worth too much or they both want to keep a share, they would divide shares of its stock.

In some cases, where the spouses can't even cooperate enough to be joint shareholders, the judge may order that all or a portion of the business be sold with the proceeds being used to satisfy the divorce judgment.

How Will the Business Be Run?

Having ex-spouses as joint shareholders can be awkward for some, but many family businesses continue to run just fine after a divorce. The key is having a good operating agreement and following it.

The spouses would vote as shareholders to appoint directors and key employees just like unrelated shareholders would. If one or both acted as managers or other employee positions, they would continue in that position unless the board of directors decided to remove them.

To learn more about what will happen to a family business in a divorce, talk to a local family law attorney, Law Offices of Gordon Liebmann, today.