The Impact of Family Businesses on Divorce
By Marvin Solomiany, Managing Partner at Kessler & Solomiany Family Law Attorneys
Divorce can be a complex process. When a family business is involved, the stakes—and the complications—can be even higher. For couples who own and operate a closely held business during their marriage, the business often represents not only a source of income but also years of shared effort and investment. Understanding how a family business impacts divorce is essential for safeguarding both personal and professional interests. As we move through the divorce process, some of the things we’ll need to work through include:
Confirming Ownership Interest
When assessing the impact of a family-owned business on divorce, the first thing we need to establish is that we have a good understanding of the ownership structure. Often what people perceive their ownership interest to be is not necessarily consistent with what the actual documents show. For example, a spouse believes that they own 25% or 50% of a business. When we start looking at the operating agreement or shareholders’ agreement, we discover that the spouse’s interest was never formally documented. The spouse may still be entitled to part of the business (or its value) in the divorce, but determining that split will take some extra effort. Confirming true ownership interest is an important step.
In most situations, there’s going to be a marital component to your business asset.
Reviewing Business vs. Marital Assets
In closely held businesses, there is often a lot of overlap between personal and business finances. To accurately assess the marital estate, we will need to review your business assets and liabilities in detail. Assets tied to the business or excluded from your personal tax filings may still be considered part of the marital estate. For example, if the business is paying for things like cars or a vacation home, those could potentially be included in the division of assets. If we find that an asset like a car is owned by the business, but primarily used by the spouse who is not involved in the business, we will try to transfer that asset to the appropriate spouse after the divorce. Thoroughly reviewing business records is key to ensuring that nothing is overlooked in the division process.
Assessing the Value of the Business
The family business is an asset, just like the marital residence, and we will need to establish its value. To do this, we typically bring in a business valuation expert who can give us an estimated range of what the business is worth. There may also be marital and pre-marital components to consider. Even if the business is inherited or started pre-marriage, appreciation during the marriage is still going to be relevant to the divorce. In that case, we would assess the value as close to the start of the marriage as possible, and then assess the value today to understand how that’s changed. While there would be a separate, pre-marital component, the value of the appreciation would be part of the marital assets subject to division.
Final Word
A family business can make divorce significantly more complex, but with proper legal guidance, it’s possible to reach an equitable resolution. Whether you’re seeking to protect your business or ensure fair compensation, working with a skilled attorney and financial experts is essential.
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