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How can divorce impact shares in a family business?

On Behalf of | Feb 9, 2024 | Divorce |

When divorce occurs, it disrupts family life in many different ways. Family businesses, for example, often become entangled in the complexities of divorce proceedings. Managing shares in the family business can be approached in different ways, depending on the legal and financial issues at hand in any particular case.

The following are several common ways that shareholding related to a family business can be affected in the event of divorce.

Division of assets

Marital assets, often including shares in a family business, may be subject to division during divorce proceedings. Family business shares owned during the marriage will usually be divided equitably in a litigated scenario, unless an alternative is specifically exempted in a prenuptial agreement or agreed to between the parties. However, inherited shares bequeathed prior to the marriage may be exempted from division unless the inheriting spouse adds the other spouse to the ownership or combines the inherited shares with marital assets.

Buyout or liquidation

In some cases, divorcing spouses may agree or be required by the court to sell the family business or buy out the other spouse’s share. This can have a significant impact on the value and stability of the business. The remaining spouse may need to secure financing or use other assets to buy out the departing spouse, potentially affecting the overall financial health of the family and the business.

Business valuation

Determining the value of the family business is a crucial step in divorce proceedings. The valuation can impact how shares are divided or what compensation is provided to the non-owning spouse. Valuation methods can include assessing the business’s assets, income and market value. Disagreements over the valuation process can lead to further complications and delays in the divorce proceedings.

Divorce can have a significant impact on shares in a family business, affecting ownership, valuation and the overall stability of the business. Seeking legal and financial advice early on and implementing preventive measures can help spouses to navigate these complexities and minimize disruption to a family business.

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