What happens to a small business when its owners divorce?

On Behalf of | Jul 24, 2024 | Property Division

Opening and building a small business takes a lot of work. When a couple does this together, they both have an interest in what happens to the business. If a company’s owners decide to divorce, one of the main decisions they have to make concerns the fate of the business.

Business owners in this position can consider various options. One important factor is whether there’s a marital agreement in place that addresses the small business. That agreement will govern the treatment of the business, if so. In the absence of a prenup or postnup, these are a few of the options the couple may consider:

Close the company

Closing the small business is one option. It’s typically the approach that’s chosen if the company isn’t profitable. In this case, all debts for the business would have to be addressed, which could have a significant impact on property division if they are considerable.

Company buyout

One spouse may want to continue running the business. They may be able to initiate a buyout of the company. This can be done by working out a deal where the spouse who isn’t keeping the business gets a larger share of other marital assets. It can also be done by a cash buyout. This option requires a business valuation.

Sell the company

Selling the company is another option. In this case, the business is valuated and the profit is likely split as part of the property division process. A potential downside to this approach is that it may take a while to find a qualified buyer to purchase the company.

Continue joint ownership

Both owners may continue to own the business together. Rights and responsibilities must be spelled out clearly in a partnership agreement. Continuing to own the business as a partnership requires the owners to be able to put the divorce aside and work cooperatively.

A small business might be one of the larger assets that a couple has to handle in divorce. This can be a challenging undertaking, so it may benefit both parties to each have a legal representative that can assist them with vetting all available options.