Aside from the marital home and retirement accounts, the family business can be one of the largest investments that must be divided in a divorce case. If you and your spouse are both working for the business, things can get especially tricky. In researching this blog post, I came across several articles on the issue of how to divide up a family business in divorce, here, here and here… I also came across an article by a close friend and fellow North Carolina divorce lawyer, Angela McIlveen. (If you are in Charlotte, she’s the one to call).
If you have a family business in Cary or Raleigh, and are thinking about divorce, it is better for you to seek the help of an attorney sooner rather than later so that you can engage in some pre-divorce business planning. A little planning ahead of time can pay huge dividends later.
The first step in dividing up the family business is to start to think about how it is going to be divided. Will you and your spouse continue to co-own the business, will it be sold, or will one of you buy-out the other?
The next important (often overlooked) step is to determine the value of the business. Just as we typically will have to hire an appraiser to put a value on the marital home, such it is that you may need to hire a certified appraiser to value the business. This is especially important as the theoretical value of the business can vary dramatically, depending on whether you or your spouse is going to receive the business.
Finally, there are a whole hoard of issues that must be considered when a family business is concerned, including:
- When was the business created, and by whom?
- How many other family members may be involved in running the business?
- What percentage of the business is owned by you and/or your spouse?
- What is the corporate structure of the business?
- Is this even a business at all – in other words, could the business owner step away from the business and still earn a living?
- What are the outstanding liabilities (including taxes) that the business is responsible for?
- Is a confidentiality agreement or buy-sell agreement going to be necessary?
- Did you sign a pre or post-nuptial agreement with your spouse that covers the division of the business in the event of divorce?
- Is there a business partnership agreement or shareholder agreement that would address what happens in the event of divorce?
- Is there a way to structure a buyout of the business in periodic payments so as to minimize disruption to the business?
- If you are the business owner, you may want to consider timing your divorce and separation at a point where the business has a lower valuation.
- Are there personal guarantees that you or your spouse are liable for?
- What are the tax consequences of transferring the business?