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What happens to your family business when you divorce?

If you and your spouse own a Florida business, it likely is your pride and joy as well as your major, if not only, source of family income. How to divide this business between you should you divorce therefore can become a huge issue. Florida is an equitable distribution state, meaning that all marital assets must be divided fairly and equitably between divorcing spouses. However, “fair and equitable” does not necessarily mean a 50/50 split. You have the following three basic options when it comes to deciding what to do with your family business:

  1. Sell it and divide the proceeds between you
  2. One of you buy out the other’s share
  3. Continue to own and operate it together

Since each option has its own inherent advantages and disadvantages, your ultimate decision may hinge not only on the value of your business, but also the emotional attachment that each of you has to it.

Sale

Selling your business and dividing the sale proceeds may be the most straightforward way of dealing with it. It also may mean that each of you receives a relatively quick and substantial cash influx. Conversely, it also means that both of you must give it up, and one or neither of you may be willing to do that. It also means that you must determine your business’s value and its selling price. This almost certainly will entail hiring a professional business evaluator since neither of you likely possesses the objectivity required to arrive at realistic figures. Depending on your business’s size and complexity, the fees associated with this service could amount to tens of thousands of dollars. In addition, how quickly your business sells depends on the health of your local commercial real estate market.

Buyout

If one of you is willing to walk away from your business, a buyout may be your best option. It could be a win-win situation. The staying spouse continues doing the work (s)he loves and the leaving spouse relinquishes what may have become a heavy burden while leaving with money in his or her pocket. Again, however, you likely will need to hire a professional business evaluator to determine your business’s value and the value of each spouse’s share. Once you know these figures, the staying spouse then faces the problem of how to pay the leaving spouse. Again, three basic options exist as follows:

  1. The leaving spouse receives additional marital property in “payment” for his or her business ownership share.
  2. The remaining spouse obtains investment capital and/or a new business partner to provide the funds to pay the leaving spouse.
  3. The remaining spouse obtains a business loan with which to pay the leaving spouse over time with interest.

Continued joint ownership

Surprisingly enough, some couples continue to own and operate their family business together after they divorce. Obviously, both of you must be able to “divorce” your personal lives from your professional lives in order for this option to work, and one or neither of you may be able to do that. If, however, both of you believe that you can still work together even though you cannot live together, continued joint ownership likely represents the best option in terms of your business itself. It can continue normal operations without the possible slowdown that either of your other two options likely entails. In addition, you do not face the immediate necessity of determining your business’s current value or the value of each spouse’s respective share.

Nevertheless, keep in mind that business partnerships can become just as volatile as marital partnerships. The best strategy if you choose the continued joint ownership option is to draft and execute a partnership agreement as soon as possible. It should set out each ex-spouse’s business duties and responsibilities, as well as the way in which you will end the partnership should that become necessary in the future.

No one ever expects a divorce to be easy or stress-free. Unfortunately, adding family business issues to all the other issues the two of you may face can also add acrimony and anger to an already difficult situation.

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Schipani and Norman, P.A.
1605 Main Street, Suite 1110
Sarasota, FL 34236

Phone: 941-549-8981
Fax: 941-366-7331
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