Divorce When You Own a Business: What You Need to Know

Divorce when you own a business

Divorce is challenging enough on its own, but when you add the complexities of running a business together, the stakes get even higher. Whether you’re a legal professional guiding clients or someone facing this situation yourself, understanding the options and implications is crucial. This guide will help you explore the various paths you can take and the legalities involved when a marriage and a business are intertwined.

The Intersection of Marriage and Business

Owning and running a business with your spouse can be both rewarding and stressful. When divorce is on the horizon, it becomes essential to understand how your personal and professional lives will be affected.

Family Business and Divorce Outcomes

There are three primary paths you can take when dealing with a family business during a divorce:

• Sell the business and split the assets
• One partner buys out the other’s share
• Continue running the business together

Each option comes with its own set of challenges and benefits. Consulting with your family lawyer about your priorities can help you make the best decision.

Sole Proprietorship vs. Partnership

If the business belongs to one partner, the Court will treat it as property, regardless of its structure—whether it’s a sole proprietorship, partnership, or company. If the business is operated through a Trust, if one partner or both partners control the trust, the trust will also be treated as property. Shares in a company are also considered assets. This means that the involvement level of each spouse in the business doesn’t necessarily dictate the division of assets. The Court may order the sale of the business to ensure a fair settlement.

Active vs. Passive Contributions

Contributions to a business can vary. You might be actively involved in operations, or you could be handling back-office tasks like bookkeeping. Regardless, both active and passive contributions can influence the Court’s decision on asset division. Proper documentation of your contributions is essential for an equitable outcome.

Settling Outside of Court

Couples can opt to settle business-related matters outside of Court. This often involves selling the business or buying out the other’s share. If you’re transferring ownership, ensure all obligations are settled, stakeholders informed, and necessary licenses and documents transferred. Engaging a lawyer can simplify this complex process.

When the Business is a Partnership

If your business is structured as a partnership, you have the option to continue working together post-divorce. While uncommon, some couples manage to separate their personal and professional lives successfully through a concept known as a “collaborative divorce.”

Collaborative Divorce

A collaborative divorce involves negotiating and making decisions without going to Court. This process allows couples to work at their own pace toward a mutually beneficial outcome, often with the help of a neutral financial professional experienced in family law.

Continuing the Partnership

If continuing the business partnership is the chosen path, clear communication about future roles is crucial. Formalising your agreement with the help of a lawyer ensures both parties understand their responsibilities. Transparent communication with employees and clients about the changes is also important.

Legal Implications of Staying in a Business Partnership

While some can maintain a business relationship post-divorce, others may find it increasingly difficult due to emotional strain and other external factors like children. It’s essential to have a contingency plan in place.

Exit Strategies

Even if you decide to continue your business partnership after divorce, having an exit strategy is recommended. This could involve a binding agreement that outlines what happens if the partnership fails. Consulting your lawyer about these options can provide peace of mind.

Conclusion

Divorce is never easy, but understanding your options when a business is involved can help alleviate some of the stress. Whether you decide to sell the business, buy out your partner, or continue working together, consulting with legal professionals and financial advisors is crucial. By taking a proactive approach, you can ensure a smoother transition and safeguard your interests.

If you need personalised guidance on navigating divorce and business ownership, consider booking a consultation with one of our family law experts today.