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What happens to a family business when the owners divorce?

On Behalf of | Apr 17, 2019 | Divorce |

Divorce is a time of change and division. All aspects of one’s life are suddenly evolving or being divided with the other spouse, and a family business is no exception. When business owners divorce, another item that has to be divided is the family business. There are a few different ways this may be handled in Connecticut.

If the former spouses have the right type of relationship, they may both be able to retain their ownership of the business and continue on as business partners. This is the trickiest option because many former spouses have a relationship that is too damaged to be able to effectively and efficiently work together post-divorce. The couple would have to keep their personal issues out of the workplace and put their business relationship first, which can be difficult — especially for newly divorced partners.

If the couple would no longer be able to work amicably together or if one spouse doesn’t have an interest in keeping the business, one spouse can buy out the other spouse’s ownership interest and own the business independently. This purchase may be made all at once or paid off over time. The value of the spouse’s shares would be determined by an appraisal. Care must be taken when determining how this arrangement will take place to avoid tax consequences. Often the sale of ownership shares from one spouse to the other during divorce is exempt from taxes, but if the shares are bought back by the business there may likely be capital gains taxes which would need to be factored into the valuation.

Sometimes it is best if both spouses walk away from the business. The business would be sold and the proceeds from the sale divided between the spouses. This allows both parties to start over with their own interests and put the family business behind them. There may likely be tax consequences from selling the business, and the sale itself may take some time, so there must be extra consideration paid when choosing this option.

Determining what to do with a family business during a divorce can be a very emotional challenge. It can also have a significant financial and lifestyle impact. An experienced Connecticut divorce attorney can assist a business owner in determining his or her best options while navigating this complex decision.