Armstrong Law, P.C.

What happens to your family business when you divorce?

If one of the marital assets you and your spouse own in Massachusetts is a family business, what happens to it when you divorce likely will become a major issue. If you are like most couples, your family business represents not only your greatest asset, but also the one that provides most, if not all, of your family income. Consequently, how you split it up undoubtedly will have lasting consequences for both of you.

Forbes reports that divorcing couples usually have the following three options when it comes to splitting up their family business:

  1. Sell it and divide the proceeds
  2. One spouse buys out the other spouse
  3. You both continue to own the business

Sale

Assuming both of you are ready to walk away from your business, selling it likely is your best option. Be aware, however, that selling presents several negatives. You will likely need to hire a professional business appraiser to not only determine the overall value of your business, but also the values of your respective ownership shares, plus a realistic selling price. All of this takes time on his or her part and a potentially large cash outlay on the part of you and your spouse to obtain these services. In addition, should your local commercial real estate market be in a slump, it could take a year, or even longer, to sell your business.

Buyout

Assuming one of you wants to continue owning your business, but the other is not averse to leaving it, you may wish to consider a buyout by the staying spouse of the leaving spouse’s ownership interest. Here again, you may need to hire a professional business appraiser to determine the values involved. Once determined, the staying spouse generally has the following three options available for paying the leaving spouse:

  1. Exchange other high-value marital assets for the leaving spouse’s business share
  2. Obtain investment capital or a new partner to bring cash into the business
  3. Obtain a business loan

Continued joint ownership

Surprisingly, some divorced couples find continued joint ownership to be the best option. Should you choose this option, however, both you and your ex-spouse must be able to separate your personal lives from your professional lives. In addition, experts recommend that you secure the services of an attorney to draft a mutually agreeable partnership agreement setting forth what business responsibilities each of you will assume and how a buyout will work if you discover sometime down the road that the two of you really cannot work together.

This is educational information not intended to provide legal advice.

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Armstrong Law, P.C.
287 Appleton Street
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Lowell, MA 01852

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