Beyond the Balance Sheet: Protecting Your Family Business During a Divorce

Beyond the Balance Sheet: Protecting Your Family Business During a Divorce

Divorce is never easy, but when there’s a family business involved, the difficulties are multiplied. Every decision the divorcing couple makes affects not just them and their kids, but their family business and everyone who relies on that business for an income. When you find yourself in this position, working with an attorney with experience in divorces involving family businesses can help you protect the business and your source of income. 

Looking for help with your Birmingham divorce? Let the team at Kirk Drennan Law guide you through this process. Call us at 205-953-1424 to set up a time to meet with our experienced attorneys. 

The Challenges Faced by Family Businesses During Divorce 

When you have a full understanding of the difficulties you may face during this process, you’ll put yourself in a better position to tackle them head-on. These issues include: 

  • The division of the business: This is what many people think of first; dividing a business is far more complex than splitting up a bank account, retirement account, or vehicle collection. You’ll need to approach this carefully and with the help of attorneys, business assessors, and financial experts. 
  • Issues with daily operations: Without extensive planning, it’s common for day-to-day operations to be disrupted when the couple who owns the business divorces. The couple may not want to be on the premises at the same time, and their issues may bleed out into their communication with staff members. Because their own communication is strained, important tasks may get skipped or delayed. 
  • Uncertainty among clients and employees: Customers and employees alike may be uncertain about the future of the business. Loyalties may be split and lead to disputes among staff members, even if the couple does not want people to take sides. Employees may begin looking elsewhere for work, and customers and clients may begin looking for other suppliers or service providers. 
  • Damage to the business’s reputation: You may also have to worry about the reputation of the business, particularly if there are allegations of infidelity, fraud, or abuse.

The Importance of a Fair Valuation 

Before you can make any decisions about how to divide the business, you must secure a fair valuation. An experienced business appraiser will be able to explain how much the business is worth as it is, how much of that worth is tied to the people who own it, and factors that may cause the value to increase or decrease. For example, if the business thrives in the community because it’s family-owned and the couple is a pillar of the community, there may be no way to avoid a decrease in value upon the public finding out about the divorce. 

There are different ways to value a business, including the income method, asset-based approach, and market approach. You’ll need to provide comprehensive financial records, including purchase records, proof of debts owed, and cash flow data. 

Ownership and Division Strategies 

It is common for one spouse to buy out the other partner, either with cash or with other marital assets. Technically, you can continue to co-own the business and operate it together. However, this route requires strong communication, clear boundaries, and cooperation that overrides the negative emotions of the divorce. It may also be in the best interests of both parties to sell the business. The proceeds are then split in an equitable manner. If the business is included in a prenuptial agreement, the manner of division may already be decided. 

Protecting the Interests of the Business 

Both parties will need to overcome the negativity of the divorce and work together if they want to preserve the business. This may mean committing to not discussing the divorce with employees or customers, presenting a united front to customers and employees, assuring affected parties of the business’s continued operation, and limiting how much information about the divorce is made public. It requires a substantial amount of cooperation and communication. 

Facing Divorce? Contact Kirk Drennan Law Today 

If you’re struggling with your family business and divorce in Birmingham, the team at Kirk Drennan Law is here to help you plan for the future. Let’s sit down and talk about your options. Call us at 205-953-1424 or send us a message online to get started. 

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