How Getting Divorced Affects the Family Business

What happens when you mix business with pleasure? People often think starting a family business is a good idea until things get rough and meetings with lawyers begin. A family business is a complicated area of asset division, especially if there is no shareholder agreement in place. This asset division can become even more complicated when there are obligations to employees, clients, shareholders, and creditors.

If both spouses are equal controlling shareholders in the family business, this will not be affected by divorce and the spouses may have to continue as business partners post-separation. Depending on how their marriage breakdown ended, they may not be capable of cooperatively managing their business and this could put it at risk. Removing one of the spouses as a director would require a shareholders resolution, but it may be impossible to obtain a majority vote. A court may even intervene and order the sale of shares or the corporation as a whole.

In contrast, a spouse who is the sole shareholder or owner of the family business will only have to equalize the business’s value upon separation. Any increase in the company’s worth after the date of separation will not be shared with their former spouse.

It is best to meet with a family lawyer to create a separation agreement that addresses how the family business is to be dealt with upon marriage breakdown.

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