Family-Owned Businesses And Divorce: What Owners Need To Know

Family-owned businesses are the heartbeat of the American economy. According to statistics, family-owned businesses are behind 60% of all American jobs today and represent one out of every five companies. Unfortunately, a divorce can throw a family-owned business into chaos and put its future survival in doubt very fast.  So, what are your options?

Prenuptial agreements and post-nuptial agreements are always smart.

Realistically, a divorce between the owners of a family-owned business is not an unforeseeable event. While national divorce rates have fallen, divorces are still hardly uncommon. It's important to understand that even if you own a business prior to your marriage, your spouse will gain an ownership interest in that business after marriage -- even if he or she doesn't actively participate in the business itself.

That makes a prenuptial agreement a smart idea for any business owner who is getting married. While the conversation might be awkward at first, offering your fiance a reasonable guaranteed settlement as part of the prenup can make the deal palatable and give your business the protection you need.

If you're starting a business while already married, a post-nuptial agreement can serve the same purpose as a prenup. All it does is make it clear what interest your spouse will have in your business (if it is yours alone) or how the business will be divided if you divorce (if you're opening it together). Think of it as a safety net for your enterprise and all the employees who may one day rely on you. 

A buy-sell agreement can also save the company.

If you forgo the prenup and the post-nuptial agreements, another good option is a buy-sell agreement. Essentially, a buy-sell agreement sets the terms during which one co-owner spouse can buy out the other's interest in the business. If one spouse is more involved in the business than the other (which isn't unusual), for example, the agreement might specify that in the event of a divorce the less-involved spouse will be obligated to sell his or her shares to the more-involved spouse at market price.

It's also smart to keep an eye on future generations.

The potential for divorce woes that could affect the business doesn't just stop with you and your spouse, however. Eventually, you may want to pass on shares of the business to your adult children. When they marry, their spouses will also gain interest in the family business. If they divorce, that could affect your company negatively.

A trust might be an effective way to make certain that your family business really does stay in the family in future generations -- even if some of your heirs end up divorced. 

Many family attorneys have significant experience when it comes to protecting family businesses in the event of a divorce. If you're worried about your company's future, talk to your family attorney today.