Quatela Chimeri, PLLC

Divorce and the family business: What are your options?

If you and your spouse own a family business together or one or both of you have a professional practice in New York, this business not only likely represents one of your major marital assets, but also possibly your family’s major or only source of income. As such, if you are contemplating divorce, what happens to your business is one of your most pressing concerns.

Generally in a divorce situation, you and your spouse have the following three options

  1. Sell the business and divide the profits
  2. One of you buy out the other’s interest
  3. Continue owning it together

Which of these options is best for you depends on a variety of factors, not the least of which is the level of commitment and psychological attachment either or both of you have to the business. Consequently, while each option has its own advantages and disadvantages, your own predilections may well be as important as the financial aspects involved.

Sale

In the event that both of you are ready to move on to new ventures, selling your business or practice and splitting the sale profits may be your option of choice. The advantages are that neither of you needs to remain “trapped” in what was a joint endeavor, and each of you will gain a major cash influx that you can use as you desire.

Conversely, the major disadvantage of a sale is that you must establish a realistic value of your business and therefore a realistic sale price. This can be an expensive undertaking depending on the size and complexity of the business. You may need to spend several thousand dollars hiring and working with a professional business evaluator. Another possible disadvantage is the real estate market in your area. If your business takes a while to sell, you could wind up continuing to run it for the better part of a year.

Buyout

If your business is a professional practice, the spouse whose practice it is may well need to continue operating it while the other spouse may wish to walk away. If this is your situation, again you will need to determine not only the practice’s overall value, but also the value of each of your respective shares. Once you determine this, whichever of you remains in and with the practice will need to come up with the appropriate amount to buy out the other. Options for doing this include the following:

  • Trade the leaving spouse’s share for other marital property having an equal value
  • Acquire a new partner or other investment capital source
  • Obtain a property settlement note by which to pay the leaving spouse over a fixed period of time with interest

Continued joint ownership

If both of you have emotional as well as financial ties to your business, you may wish to consider continuing to own and operate it together. Some divorced couples who have no problem separating their business lives from their personal lives find this arrangement not only quite workable, but also quite successful. If you and your spouse believe you can deal with each other professionally on a day-to-day basis, continued post-divorce joint ownership has the advantages of no business interruption and possibly no necessity to establish the value of the business and your respective shares.

Nevertheless, business experts strongly recommend that if you and your spouse do not yet have a written partnership agreement in place, you put one in place as quickly as possible. As with all such agreements, yours will set forth what each of you brings to the partnership, which duties and responsibilities each of you will assume, and the procedure by which one of you can buy out the other’s interest in the future if and when the need arises.

Divorce is never easy under any circumstances. When you add your family business or professional practice into the mix of potentially acrimonious issues that exist between you and your spouse, your divorce can become even more complicated. The best strategy for both of you is to act as adults, keep your emotions under control and get the legal and financial advice you need.

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