What happens to the Family Business after divorce?
More often than one would think, a divorcing spouse is an owner of or employed by a “Family Business”, involving family members of the same or a different generation. The existence of a Family Business often creates emotional responses from both parties to the divorce. Sometimes the business has been started many years earlier by a parent or grandparent of a divorcing spouse. There are also cases where ownership of the family business is passed down to the next generation gradually, in accordance with a sophisticated estate plan, including appropriate tax planning. Our family law attorneys are highly experienced in helping clients continue their Family Businesses and legacies after a divorce.
Generally speaking, courts will not transfer an interest in a Family Business to the non-family member spouse after a divorce. For this reason, it is crucial to ascertain the value of the interest so that the court can make appropriate orders regarding the overall asset distribution, taking into consideration the value of the spouse’s interest in the business.
The attorneys at Ruel Ruel Burns & Britt, LLC, understand the intricacies of such business structures and more importantly, how to determine and value a family- member spouse’s interest, if any, in the Family Business. This determination involves appropriate requests for information about the business entity and working with forensic evaluators to assist in understanding the value of the spouse’s interest, including the spouse’s interest in the income generated by the business.
If a business involves the maintenance of substantial inventory, contractual commitments, governmental security requirements, or other involvement of third parties, the requests for information must be sensitive to the confidentiality of information. The court is often receptive to the request for a confidentiality agreement between the parties and their experts, which shields any information disclosed to a spouse’s attorney and dictates the exact circumstances under which the information may be shared.
The attorneys at Ruel Ruel Burns & Britt, LLC, have extensive experience in drafting and negotiating the terms of confidentiality agreements, including advocating for specific terms to the court when the parties disagree.
Another category of Family Business is a business which is started by one or both spouses during the years of the marriage. Aside from the valuation issues, the court must decide which spouse should retain the business if there is no agreement between the parties. The court will consider evidence of the responsibility for the day-to-day operation and management of the business, whether the business was the “brainchild” of one of the spouses, along with many other factors, in making orders regarding the business.