How to save the family business from falling victim to divorce

When couples are also business owners together, a divorce can lead to big financial headaches.

As MarketWatch reports, close to half of all marriages will end in divorce and for couples who are also business partners, that statistic should be considered a grave risk to their small business’ future. When couples who run a family business together go through a divorce, that business is threatened in a number of ways. Disputes concerning business valuation could turn costly while the business itself could end up failing due to both spouses being too distracted by their divorce. Below is a look at how divorce threatens a small business and how to avoid those risks.

Options for a small business

In many cases, the family business will, at least in part, be considered by the court to be the property of both spouses. In effect, that leaves couples who are going through a dispute with a few options. Perhaps the most popular option is for one spouse to simply buy out the other spouse’s share in the business. This makes a lot of sense if much of the daily running of the business was done by just one spouse. Alternatively, both spouses could agree to simply sell the business outright and to split the proceeds of the sale.

Business valuation disputes

However, there is one major issue that often becomes a point of dispute with either of these options: business valuation. If both spouses cannot agree on how much a business is worth then deciding how much each spouse is owed, regardless of whether one spouse buys out the other one or they both choose to sell the business, could lead to a serious impasse. These disputes can drag on for a long time and they may disrupt the day-to-day operations of the business, which in turn could leave any employees unsure of their future and the business’ viability put into doubt.

Getting past disputes

Such disputes, as CBS News points out, can often be avoided with a prenuptial agreement. While a prenuptial agreement cannot prevent disputes over business valuation from arising entirely, it can at least set out a clear formula for either a buyout strategy or for selling the business. Furthermore, such disputes are rarely in either spouse’s best interests, since they are costly to both parties. They often may be best resolved by pursuing a negotiated settlement through mediation, collaboration, or arbitration, which are all quicker and cheaper than going through the court.

Family law help

Divorce raises many personal, legal, and financial issues that will need to be resolved effectively, especially when the spouses getting divorced are also small business owners. An experienced family law attorney can help clients who are going through a divorce in a number of ways, including by helping them get in touch with qualified business analysts and exploring negotiating strategies that will better protect their assets.