Divorce and the Business Owner

Return to Divorce Services

Divorce almost always poses significant challenges for owners of small businesses and self-employed professionals. Typically, divorce will raise some or all of the following questions regarding the business:

  • How will the business be managed during the course of the divorce process? What accountability is there to the other spouse for business activity occurring the course of the divorce proceedings?
  • What business records is the other spouse entitled to have access to? Will trade secrets or confidentiality be at risk?
  • How will the business be valued and what will be considered in the valuation process? Who will value the business? How costly will that process be?
  • How will the value of the business be recognized in the division of the marital property? Will it be necessary to sell the business? How can a buyout be accomplished? Are there tax consequences associated with the disposition of the business interest?
  • What role, if any, will the other spouse have in the future of the business, particularly where that spouse may have been integral to the business during marriage?

Unless the parties agree to a process where they can keep control over the outcome, the decision to the foregoing questions will be made by a stranger—the judge—who often has limited or no background in business matters. Their decisions are typically made on the basis of input from competing experts and lawyers, usually after a very prolonged and expensive court process that may take years to conclude.

Fortunately, there are alternatives to the traditional court-based divorce process which enable the divorcing couple to work together to answer these questions without subjecting themselves to an outcome determined by someone not attuned to the needs of the parties and the business.

Divorce mediation and collaborative divorce allow the parties to jointly make decisions as to what will happen with the business during the course of the divorce proceedings. The two processes share the common characteristic of keeping control over the outcome in the hands of the parties.

Divorce mediation usually involves the parties working directly with a neutral mediator. Lawyers are not commonly involved in the mediation process. In collaborative divorce, the parties each have divorce lawyers representing them throughout the process. Despite these differences, both the mediation and collaborative processes allow the parties to jointly decide what will happen to the business and how that decision will be reached. Here the parties are able to engage the services of independent neutral financial specialists to help them gather the information, determine the value of the business and decide how that asset is to be handled in the process after exploring as many options as they wish to consider.

With collaborative practice and mediated divorce, the cost of competing "hired gun" experts is avoided as the parties agree upon a single neutral financial specialist to guide them through the process. Substantial savings can be achieved.

In divorce mediation and collaborative divorce, the process of gathering the information is controlled and tailored by mutual agreement of the parties, resulting in a more orderly and efficient process than commonly occurs in a court-directed case, where the business operations may be disrupted by intrusive and burdensome demands for records and visits by opposing accountants to the worksite.

Anyone who owns a business and is faced with the prospects of a divorce should carefully consider how the choice of the divorce process itself can affect what ultimately happens to the business and the ability to earn a living going forward.