While a divorce by its own account can be a very complex process, add the detail that the couple owns a business, and the division of marital assets can become all the more challenging. And when you consider the fact that the business is the couple’s livelihood, the futures of all the family members are at stake, as noted by attorney Richard Eisen of Growe Eisen Karlen. “In most instances, it’s the family business that provides the support for the family unit, and the spouse that is not going to stay in that business needs to appreciate that and not do something that’s going to destroy it,” Eisen says. “The other piece is when you have a spouse who hasn’t been involved in the business on a day-to-day basis, that person really does need the help of an attorney who generally understands how a business operates. A forensic accountant can really get a good grasp on what that business’ interworking is and how it can generate income for everyone’s benefit.”
According to Kirk Stange of Stange Law Firm, the most common scenario after such a divorce is that one spouse assumes charge of the business. “In the vast majority of instances, one spouse takes control of the business after the divorce, buying the person out,” Stange notes. “This is especially true with companies that are more successful.”
In a situation when one party needs to take ownership, Eisen explains that a fair value needs to be established. “There are certain ways of doing it, and it can be challenging at times,” he says. “Typically, we rely on someone who has the expertise in that area, and sometimes both sides will agree to use one person to value the business or you will see each side having their own evaluator.”
And the type of the operational setup also plays a part, notes attorney Tom Osterholt of Spencer, Fane, Britt and Browne. “When it is a closely held company, it’s very important to hire lawyers who understand how the corporations work,” Osterholt says. “Whether it’s a C corporation, limited liability company (LLC) or it’s a Subchapter S corporation, each one has different tax treatments, and you have to look at how much money is sitting in the retained earnings or a Triple A account, and evaluate whether that is a marital component that needs to be considered by the court.”
Another scenario—while rare—that does occur, according to Osterholt, is when former spouses continue to operate a business despite the dissolution of their marriage. “In some cases, it’s a situation where the parties don’t want to be married anymore, but they don’t hate each other, either. They are able to work together to make their business successful,” he notes.
Eisen also recalls some situations when former spouses remained in business together, but very strict guidelines were put in place. “I remember one situation when we actually did employment agreements,” he says. “And that meant while they owned the business together, they also couldn’t try to fire the other. In another situation, we restructured the management of the company and how it ran on a day-to-day basis.”
Stange points out that “if it’s a business where you have four or five owners and they are just two of those owners, then it becomes more plausible that they would be able to keep their interests in the business. But people who are married and are running a business together really have to think long and hard about divorce before they go through it. Not only is a family unit divided, but now you’re talking about their business and both their livelihoods being divided, as well.”