The potential implications of a divorce on a family-run business
The goal for any divorce is to find a way to disentangle two lives that had grown increasingly more intertwined with each year of marriage. That includes a multitude of issues around finance and child care, and in some cases, there is also a family-run business that will be affected by the separation.
A divorce can obviously impact a business that both spouses co-created, or perhaps grew together, or even where one spouse played a minor role, but separating business owners should be aware that their company can equally be affected even if their spouse had no involvement in the activities of the business at all. A business is an asset, and as such forms part of the pot of assets that make up a couple’s joint wealth, along with their home and any other property, and cars and other items of value.
If the separation of finances is being dealt with by the courts, as opposed to being settled privately by the clients by way of a matrimonial agreement, the goal will be to reach a fair division of all the assets. They will consider everything that makes up the couple’s joint wealth, and then make a decision on how exactly the sum total of wealth should be divided. While the starting point for the court will be a 50/50 division of assets, it will look at a large number of factors, including the earning potential of each spouse, who will be the resident parent if there are children, the standard of living enjoyed during the marriage, and other factors that it would be fair and reasonable to take into account.
In some cases it will be possible to divide out the assets in a way that reaches the division the court believes to be fair and reasonable. However, it is often the case that a property or a business represents the majority of the wealth and the court may determine that a sale will be required in order to facilitate a fair division of the assets.
The family court will be slow to break up a family business, and there may be other options available, such as one spouse buying out the share the other is deemed to be entitled to, or the liquidation of some of the assets of the business in order to achieve the settlement the court has arrived at. Asset sales are a last resort however as they can impact the capacity of the business to perform.
If the court decides that the family business does have to be involved in the divorce they will then have to deal with issues around the valuation of the company and its assets, shares or interests of other family members, financial contributions made to creating and growing the business and other matters which will affect the share entitlement of both spouses.