When business owners face a divorce, the future of their company hangs in the balance. The decision on how to proceed with the business depends on various factors, including the nature of the divorce, the relationship between the owners post-separation and the financial and operational health of the business.
There are several potential paths forward. Each option comes with its own set of challenges and considerations.
Continuing joint operation
One possibility is for the divorcing owners to continue running the business together. This option requires a high level of mutual respect, communication, and clear boundaries to ensure that personal issues don’t interfere with business operations. The feasibility of this approach often depends on the ability of both parties to separate their personal relationship from their professional relationship. It involves drafting a new or revised partnership agreement that outlines the roles, responsibilities, and dispute resolution methods to govern their business interactions.
Buyout
A buyout occurs when one owner purchases the other’s interest in the company, becoming the sole proprietor. This option is viable when one party wishes to leave the business, and the other wants to continue running it. The buyout can be financed through various means, such as personal funds, business profits, or external financing. Fair business valuation is critical in this scenario, and the buyout terms must be carefully negotiated to ensure a fair and equitable arrangement.
Selling the company
Another option is to sell the business and divide the proceeds. This route may be chosen if neither party wants to continue running the business, if the business can’t feasibly support one owner buying out the other, or if both parties agree that selling is the best way to maximize their individual returns from the investment.
Closing the business
Sometimes, the best or only option may be to close the business. This could be due to financial difficulties, an inability to agree on other options or a mutual desire to start fresh. Closing a business involves settling any outstanding debts, liquidating assets, and completing legal requirements for dissolution.
The co-ownership of a business can become central focus during property division negotiations or litigation in the event of divorce. Ultimately, given what is at stake and the complexity of such situations, seeking legal guidance is generally wise.