How does a divorce affect a family-owned business?
Divorce can create a power change, add a competitor, remove an owner or change very little for a family-owned business.
When a Washington couple decides to start a business together, they likely do not think about what is going to happen in the event of a divorce. However, marital separations can have a significant impact on a family-owned business. With a state-wide divorce rate of 3.4 per 1,000 residents according to the Centers for Disease Control and Prevention, it is not surprising that some spouses looking to end a marriage may have to worry about what will happen to their business.
Creates a change in power
Sometimes a divorce can shift the power dynamics of a company. If one of the spouses had been a non-owner, he or she may gain some ownership shares as the couple divides community property. With the ownership shares, the non-owner spouse may find him- or herself with a little say in the day-to-day operations of the company.
Even if both spouses were a part of a business before splitting up, a divorce can still create a change in power. For example, the change in their personal relationship could make it harder for the two to work together. Where they once agreed on who oversaw the big picture and who made the creative decisions, they may now quarrel.
Adds a competitor
Business owners going through a marriage dissolution can decide to split up the business along with the rest of their assets. In other words, each couple may be allowed to take a few clients and equipment to create two completely separate companies. This option works well when a family-owned operation has enough assets to create two functioning businesses.
Removes an owner
In other situations, the exes may decide to give sole ownership of the company to one party or the other. Typically, some type of compensation will be given to the spouse who does not end up with ownership of the business. For example, a non-owner spouse may simply want compensation for his or her share rather than taking any part of the control away.
Every once in a while, divorce has no long-term effects on a family-owned business. If two people want to end their personal relationship but continue their professional partnership, they can do so. This option may be appropriate for individuals who cannot agree on a realistic buy-back price or companies that involve multiple generations. A mother and father may be less willing to change a business if their children will be negatively affected.
Washington family-owned businesses can be drastically changed if a divorce takes place. No matter what type of assets are involved, it may be beneficial for a couple considering a marital separation to work with a knowledgeable family lawyer.