The Role of a Family Business Lawyer During Divorce: A Comprehensive Guide

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Divorces involving family businesses can increase the complexity of divorce proceedings due to the need for business and family law considerations. Litigating a divorce case that involves a family-owned business requires sensitivity, creativity, and flexibility.

Many family-owned businesses have prenuptial agreements in place. This protects the company in the event of a divorce. However, even without a prenuptial agreement, other arrangements can be made to protect the company in case of a divorce.

Defining the Role of the Business

A considerable number of companies operating in the United States are family-owned businesses. They employ more than 60% of the country’s workforce, making them vital to its economy. However, a divorce can throw these profitable operations into turmoil. An experienced family lawyer can protect the interests of both parties in a divorce.

Unlike other assets, family-owned businesses are not necessarily divided equally in a divorce. An appropriate prenuptial agreement can prevent this from happening.

A couple must establish a clear role for each spouse in the family-owned business, including duties and compensation. Please do so to avoid conflict and claims that one spouse has a more significant stake in the business than another.

A skilled family attorney like those at Sisemore Law Firm can work with the business’s accountant to create a compensation plan that will protect the interests of both parties. Alternatively, a business owner may buy out their spouse’s interest in the company, but this is only sometimes the best option from a tax perspective. An alternative is for the spouse of a family-owned business to trade their share of the business for other assets, such as real estate or a retirement account.

Valuation of the Business

While a divorce can be challenging for any couple, it can prove much more difficult when family business issues come into play. In most cases, a divorce will result in the exit of one or both parties from their co-owned business, which is one of their most significant shared assets. This simultaneous disruption of two distinct legal entities – the marriage and the family business – presents unique challenges, as each party’s rights will likely not be identical in both contexts. In addition, the equitable principles that govern family law often trump conflicting business law rules.

In most cases, if a spouse founded or acquired a business during the marriage and it increased in value while they were married, their share in the business will be considered marital property, even if it existed before the marriage. This may lead to complicated property division decisions.

A skilled lawyer can assist in determining the right course of action when handling the business-related assets of a marriage dissolution. A business valuator can be hired to determine what a business is worth, which can be used as the basis for dividing ownership shares. Dividing the proceeds from selling the business could be an option for the divorcing couple. In either case, a skilled attorney’s expertise can be invaluable in determining the best approach.

Defining the Responsibilities of Key Employees

Divorce can be stressful and complicated for couples, especially when a business is involved. When this happens, management and other family members may have difficulty deciding the company’s future. This can cause rifts that can damage relationships within the family and hurt the business.

A family business lawyer can help resolve these disputes and ensure that the best interests of all parties are met in the divorce proceedings. One way this can be done is by preparing a buy-sell agreement detailing how ownership would be divided in the event of a divorce. Another way is to have clear policies regarding document sharing and confidentiality so that there are no misunderstandings about what information can be shared with outside parties.

In addition, a divorce attorney can help to prepare and execute a trust to protect family-owned assets over the long term. This can prevent a divorce from causing significant economic harm and provide a means of preserving family wealth for the next generation.

Defining the Ownership of the Business

Family businesses are unique in that the business and the family are often inextricably linked. This can cause problems when it comes time for succession planning. For example, it can be difficult for a controlling family member to relinquish business control, particularly when the transition may be timed with a divorce. Similarly, some family members may not be willing to give up their stake in the business for a fair value, even if they are no longer involved in the company’s management.

Regardless of the specific issues that arise, a family business must have an agreement to set out how the company will be divided in the event of a divorce. This will help to ensure that the business is appropriately valued and that both parties are treated fairly during the divorce proceedings.

In addition, it will also be helpful for the parties to have an agreement that will dictate how the business will be managed after a divorce is finalized. The attorneys understand the complexity of family-owned businesses. During divorce, they can guide clients through dividing their ownership interests in their co-owned business. This is especially important if the business is a significant part of their shared assets.