October 27, 2011

Could Your Small Business Survive A Divorce?

Posted in Divorce tagged at 8:11 am by demetriagraves

There are many couples who are running small businesses together and it’s not uncommon for them to be faced with big decisions as to how best position the company for success.  What happens, however, when the couple decides that it is time to end their personal relationship and divorce becomes a serious reality and not just a possibility? Many couples find that being both husband and wife and business partners can be challenging. That challenge is increased several times over when a divorce works its way into the business relationship.

According to information from the National Federation of Independent Business, there are more than one million husband-and-wife partnerships running businesses nationwide. When divorce becomes a reality, the couple, their legal representation and even the judge can have a tough time sorting through all the material.

For those who may not know, divorce law is centered on the idea of marital property, whereby, anything acquired during a marriage is in all likelihood consider marital property.

In the event the husband or wife was running the business and the other spouse was at home raising kids or working elsewhere, it does not matter. The law will look at this scenario as the partner not inside the business still in some manner contributed to its success. That being the case, the person more removed from the business is still entitled to their fair share of the company, oftentimes half.  In instances where one individual had the business prior to the marriage, but kept it during the married relationship, any increase in revenue during the couple’s time together is viewed as marital property.

So what are some of the possibilities that can come out of a divorce involving business partners? Among the three most common are:

  • Buyouts – While some divorced couples do continue working together, many find it’s not doable. If that is the case in your situation, would you consider a buyout of your business partner? An accountant can help provide you with the financial details of such a decision, whether in fact it will all be done at once or over time. Remember, however, losing one of the partners could have a major impact on the business, so think it through.
  • Staying in business together – While this one may not be at the top of your choice list, it can prove amicable in some instances. Given the fact you are not likely a very rich and large corporation, it doesn’t mean you cannot put in place a board of directors for the business. By doing so, you get an unbiased opinion (hopefully they’re not playing favorites) and can move along and do what is best for the company.
  • Putting the business up for sale – This can be an unpopular decision, but sometimes it is best for all parties involved. It is important for divorcing couples to remember that less than 50 percent of small business put up for sale actually sell. Selling the business should be a last option given that you have hopefully been successful financially up to now with it. If the business is bringing in good revenues, both parties may be advised to work out a situation so that scenario can continue.

At the end of the day, both involved parties need to ask themselves if they could see a scenario where they could be divorced from one another, yet continue to work together on a regular basis.

If you are considering a divorce but aren’t sure of your options I offer a free initial consultation where I can answer all your questions and help you determine the best way to proceed.

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