Family-owned businesses: When divorce law meets business law

This article looks at how business law and family law overlap, especially with family-owned businesses.

A lot of businesses throughout the United States are owned and operated by married couples. In fact, as CBS News reports, there are an estimated 3.7 million business in the country that are jointly owned by husband and wife teams. Obviously, those marriages are not immune to divorce and when business partners get divorced they will have to decide what they want to do with the family-owned business. While selling the business and splitting the proceeds may be the best option in some cases, in many others it makes more sense for one spouse to buy out the other spouse.

Selling the business outright

In many cases a family-owned business will be considered marital property, meaning that the value of that business will have to be split between the two divorcing spouses. One way of splitting the value of the business is to simply sell the business outright and then divide the proceeds of the sale. The advantage of doing this is that, for one, it provides a clean break from a business that may be too closely associated with a period in one's life that one would rather move on from. It can also present a good financial opportunity if the business can be sold at a high price.

On the downside, the business will have to be valued, which can lead to its own set of disputes if neither spouse can agree on what the business is worth. That also means that the business may be left unsold if the other spouse refuses to cooperate. Finally, for some people selling a business means losing their main source of income and having to rebuild a new livelihood from scratch.

Buying out the other spouse

Another popular option is for one spouse to buy out the other spouse's share in the business. This makes a lot of sense if one spouse is more dependent on the business than the other spouse is for his or her livelihood. If the business is a dentist's office, for example, then it makes the most sense for the spouse who is the dentist to keep the business and buy out the other spouse. Buying out the other spouse also allows for continuity after a divorce.

On the downside, as with selling the business outright, disputes can arise over how much each spouse's share of the business is worth. Furthermore, not everybody will have the capital available to actually buy out the other spouse. As MarketWatch points out, however, taking out a loan or adding a new business partner may help with raising the capital that is needed to keep the business alive and in one's own name after a divorce.

Business and family law help

When it comes to divorce and small business it pays to consult with a law firm that is experienced in both family law and business law. Such a law firm will be able to provide small business owners with the advice and guidance they need to ensure their businesses and their best interests are protected.