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What Divorce Means For Family Business – How To Deal With It

One of the toughest emotional and entrepreneurial challenges is keeping a family business together with your ex-spouse after getting divorced. Spouses simply become more protective of their individual assets as well as of themselves, and the only way a shared business can survive is by putting its interest in front of their own. However, in such difficult times, achieving this can be very hard. In this article, we present you different possible solutions for maintaining your business and keeping it afloat after the divorce is finalized.

What Divorce Means For Family Business - How To Deal With It

Determining Business Value

In divorce, this is probably the most critical process that concerns family business. It represents the value of your business assets today as well as the value of expected future benefits. The best way for determining the value of your business is to hire a professional valuation analyst who will follow strict valuation principles when valuing your business worth. If you decide to sell it, this price can be used in negotiations with possible buyers. The bad thing about the whole business valuation process is that family businesses often go through rough time during its owners divorce, having their value and performance drop significantly.

Business Continuation

In case the spouses are rational enough to decide to continue managing their business, even though they were not able to manage their marriage, they would probably decide for the best option. Running a business requires different skills, so if spouses realize this, put their differences aside, and come to an agreement, they would do the best possible thing for the future of their business. Most often people find this impossible, but it can work well.

Even if a mutual agreement for business continuation is achieved, there should always be an exit strategy in case things do not work out as they thought they would. If spouses decide to end and sell their business, an exit strategy in the form of a mutual written agreement should exist to guarantee certain value to both of them and specify a detailed method that they will use to sell the business.

Severing The Business

In most divorce cases, it is possible to sever a family business into two different parts. It is a way for keeping the business afloat, because in most of family businesses each partner is responsible for certain segment. By splitting the business into two parts which would not be vulnerable to customer service issues and quality control caused by the other spouse, but be independent from each other, is possible in most cases. Each spouse is then entitled to change the name of its share, which may lead to new incorporation. However, corporation codes differ from state to state, and you should always have that in mind. For instance, those who are getting a divorce in Oregon should check all incorporation requirements of their segment of the family business at Secretary of State because they might be a significantly different from other states.

Selling The Business

If a mutual agreement regarding business continuation cannot be achieved, divorced couple can decide to sell the business. This may be the best solution, because if a cold headed business relationship is impossible, the business will continue to plummet down due to lack of understanding and support between the spouses. They can decide to sell some expensive assets separately (production plant, office building, or land), or hire an analyst to value their business, and the form a reasonable selling price around valued figure. In order to make a good sale, it is crucial to spread the word on all the right places. Also, not mentioning the divorce to possible buyers is important when negotiating the sale. Otherwise, they will know you are in a hurry and may try to lower the price down.

Conclusion

When going through a divorce, which is difficult enough from an emotional aspect, when things such as family business are in question, one must try to remain cold headed and rational as possible. Finding a mutual ground with your soon-to-be-ex is important, so you can discuss the future of your business and find an agreement that works the best for both of you.

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