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What happens to a family business in divorce?

On Behalf of | Oct 11, 2023 | Business Law, Divorce Law

Your marriage is over, and you are heading for divorce. Property division is a major part of the divorce process in Pennsylvania. This process can be complex, and the situation becomes even trickier if you own a business with your spouse.

Chances are you and your spouse were not contemplating divorce when you went into business together. But as a business owner, you know that part of running a successful business is being prepared for the unexpected.

The good news is that you have a few different options when it comes to what to do with the family business during a divorce. There are benefits and drawbacks to each option, so ultimately you will need to decide what works best for your situation.

Continue to run the business together

You and your spouse can continue to own and run the business together. Your marital status does not necessarily affect your ability to run your business.

The benefit of this is that you can keep your business operations running smoothly and continue to own your portion of the business. You can also avoid doing a business valuation as part of your divorce, which can be costly.

However, it can be emotionally difficult to keep running a business with your spouse after divorce. You should only choose this option if you are certain both of you can put personal feelings aside and focus on the business.

One spouse buys out the other

Another option involves one spouse buying out the other spouse’s portion of the business. This requires a business valuation done by a business appraiser.

You and your spouse can agree on a business appraiser, which will save you money, or you can each use your own and compare the respective valuations.

Once you have an agreed-upon value, one spouse will buy out the other’s half of the business, or you do an asset exchange. For example, if your spouse gets the entire business, you could get an entire other asset, such as a house, of relatively equal value.

Selling the business and splitting the profits

The third option is to sell the business and split the profits evenly. You should still have a business valuation done if you choose this option to make sure you are selling it for an appropriate price.

An advantage to selling your business is that you and your spouse will both walk away with some proceeds to use toward whatever you want. However, if your business takes a long time to sell, or you have problems with the sale process, you must work with your spouse for longer than you may have wanted.

Deciding what happens to a family business in divorce requires careful evaluation and serious thought. It is not a decision to make lightly.

If you and your spouse still have a relatively amicable relationship, have a direct and honest conversation about what you believe to be the best decision. If your relationship is damaged to the point that communication is strained or impossible, you may need the help of a divorce professional.