When going through a divorce, small family businesses present a significant risk and challenge.
Many married couples also happen to be joint-owners of small businesses. Running a business with a spouse can prove particularly beneficial since both owners tend to trust one another more than they would other business partners. However, as the Financial Post points out, many marriages end in divorce and for business owners who also happened to be married to one another, a divorce can threaten their livelihoods and the survival of their business. While dividing personal assets may be straightforward, dividing business property during a divorce can prove challenging for the unprepared.
Lack of an agreement
The sense of trust that can be an advantage for many family businesses can also be their downfall. As the Globe and Mail reports, unlike with non-family businesses, couples who are joint-owners of their business often fail to address how a business will be dealt with if the two owners go through a divorce. Obviously, many couples do not want to believe that they will ever divorce, which leads them to overlook a very serious risk to their livelihood by not addressing the problem in a shareholders agreement once a business is established.
Not having that agreement in place ultimately places not only the divorcing spouses themselves at financial risk, but also their employees, customers and clients. If, for example, neither spouse can agree on how much a business is worth, then the lack of stability can make employees nervous and may discourage new and existing clients and customers.
Emotion and money
Regardless of whether a prior agreement is in place, a divorce can still raise difficult and unforeseen issues. Business valuation tends to be particularly problematic, especially if one spouse is attempting to buy out the other spouse. In one scenario, for example, a spouse may place him or herself at an extreme disadvantage by agreeing to the valuation set by the other spouse. On the other hand, however, somebody who is trying to buyout his or her former spouse’s share in the business may be hampered by the other party’s insistence on an unrealistically high valuation.
Many of the problems associated with business and divorce often come down to emotion. Divorce, after all, can be a tumultuous process even in the best of circumstances. With two people who can no longer trust one another forced to make important business decisions together, the financial consequences for either party can prove dire.
The risk of letting emotions lead to bad business decisions is why a family lawyer should always be contacted when dealing with a divorce. By offering a detached point-of-view that comes from years of legal experience, the right lawyer will be able to offer clients the sort of advice that can ultimately protect their livelihoods and best interests after a divorce.