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Saving the family business during a divorce

by | Feb 23, 2018 | Blog, Firm News |

If you own a Florida business with your spouse, but are contemplating divorce, deciding what to do about your mutually-owned business may become one of the most contentious aspects of your impending divorce, second only to child custody issues. The longer you have been married and the more successful the business has become, the more difficult it likely will be to determine how to divide its value between you as part of your fair and equitable distribution of property during your divorce.

The other main factor is how tied each of you is to the business. If you both own it, but only one of you actually runs it, things might be easier in terms of deciding what constitutes a fair division of its value and how that division will take place. If the business represents the major portion of your marital assets, however, then you and your spouse must devise a way for the one who wants to keep the business to pay a fair share to the one who would be just as happy not owning it anymore. This can be especially difficult if your other marital assets are insufficient to make a like-kind trade for the fair business share of the departing owner.

If, on the other hand, both of you are actively engaged in the business’ day-to-day operations, and both of you are committed to it and love working for and in it, the problems become very vexing indeed. Now emotions and self-identity are involved, not “just” money.

Determining your company’s fate

One way or another, you and your spouse will have to decide what is going to happen to your business. This may be one of those times when deciding to mediate rather than litigate makes perfect sense. It can save you time, money and a lot of stress. The fact that you will be negotiating with each other in a neutral setting and in an “enforced” cooperative, nonthreatening and good-faith manner surely is more preferable to both of you than hurling insults at each other across a crowded courtroom via your attorneys.

You may even decide to continue co-owning your business and running it together after your divorce. While this may seem ludicrous at first blush, many divorced couples have found it to be a very workable solution, especially if doing so does not entail minute-to-minute togetherness.

Paying for the buyout

If you and your spouse decide that one of you will buy the other out, then the problem becomes how to pay for that buyout. You will need a business valuation in order to determine a fair and equitable buyout price. Considering that a reputable business valuation company will charge between $10,000 and $25,000 depending on the size of your business, you and your spouse should agree on which company you want. Obviously hiring only one company instead of each of you hiring your own will save you major dollars.

One option is a bank loan to your business. Another is a “property settlement note;” i.e., a long-term loan to the business with which it makes a with-interest payout to whichever of you is departing.

Two additional options are for your business to take on a partner or obtain venture capital. While one of these options may make the most business sense, it also can take time during which whichever of you is leaving will have to wait for his or her money.

Selling the business

Your final option does not save your business. Instead, you sell it and split the proceeds between yourself and your spouse. However, if your business is your single largest marital asset, this may be your only choice. If it sells quickly, both of you have more or less immediate cash to do with what you want – like start a new business. If your business remains on the market for some time, however, you will need to keep working in it with your spouse until the sale finally takes place.