Divorcing Your Business Partner in a Family Business

Posted on March 26, 2018 in Business Partners, Disputes

This isn’t just business divorce, it’s “real” divorce.  The business divorce is the icing on the cake and people fight over it the way they do over children, favorite pets, or heirlooms.

There are two main ways a family business can be owned.  (1) One spouse owns the business.  In that case, the non-owner spouse has has no right to take the business in a divorce, but gets some financial compensation.  (2) Both spouses own the business.  In that case, get out the fireworks, because they’re a’ coming.  Neither one has any greater or lesser right to the business (unless their shareholders’ agreement says so).

And therein lies the rub.  Very often couples aren’t clear about the business ownership, and don’t consistently treat the business as only one spouse’s property (assuming it does belong to one or the other).  Or, they don’t prepare a shareholders’ agreement because, well, “we’re married.  We’re not planning on getting divorced, so why waste the money on legal fees?”

I’m not a betting woman, but with a roughly 50% nationwide divorce rate, I’d say the odds in Vegas are just about even that they’ll have to contend with a business divorce at some point along the line.  In which case, their legal fees will amount to a whole lot more than what they would have spent on the shareholders’ agreement.

In addition, with so many step- and non-traditional family arrangements, who’s to say who will be entitled to inherit an ownership interest and thereby have a say in the company?  Do you really want to be in business with your spouse’s ne’er-do-well adopted stepson?

There’s no one right answer.  And the approach that works for you today may not quite suit you tomorrow.  So, like many other aspects of a healthy business, make sure you review your ownership issues regularly (at least annually).  That way, you can make course corrections in the meantime without waiting for a catastrophe like divorce to come your way.

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