Divorce & Small Businesses

Divorce can be especially complicated for small business owners. On a personal level, a divorce is likely to distract a business owner and consume valuable time. Legally, there are many scenarios where a small business will be considered an asset in the marital estate and subject to division. The repercussions of this can be broad and potentially damaging.

A small business owner must address a variety of problems when facing a divorce. First and foremost, it is possible that a court could find the small business to be marital property. There are circumstances where a businesses that began prior to the marriage may be found to be marital property. Even family businesses may become marital property. Where a family business that existed prior to the marriage is handed down to a married son or daughter through a restrictive stock transfer or other form of conveyance, that transfer or conveyance during the marriage would likely be treated as a gift to the marital estate. That gift to the marital estate may be subject to division upon dissolution.

The valuation of a small business may also prove problematic. Courts will consider business valuations in determining the division of marital assets between spouses and the ability to pay, or need to receive, maintenance and/or child support. Further, if the court determines both spouses have an ownership interest in the business, the business value will play an important role in any distribution of marital assets or buyout offers between spouses, assuming that the parties settle before trial.

A business owner must also consider the effect that maintenance and child support payments may have on his or her cash flow and liquidity. If these payments are not properly structured, a business owner may face financial strain.

Last, business owners bear the large responsibility of running and maintaining a business. A poorly-managed divorce has the potential to drain the business owner of his or her time and money, both of which are valuable assets for any small business.

Small business owners should only work with divorce attorneys who understand the complexities of their situation and their unique needs. While a small business owner’s divorce will proceed through the same legal channels as a regular divorce, the final agreement will likely be dissimilar from a standard marital settlement agreement.

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