Businesses and Family Enterprises
Separation and divorce in a business or a family enterprise
A separation or a divorce can have a significant impact on a business, whether it is owned by only one spouse or it is a family business. It can cause legal issues, financial strain, and a disruption in the day-to-day operations of the business. In addition, family members may feel that their loyalties are divided, causing tension.
It is important for business owners and their spouses to work together to find a solution that is best for all parties involved. This could include finding a way to divide the ownership of the family business, restructuring the company, or selling the business if that’s what’s required. Although in my experience, selling the business is usually a choice of last resort.
Finally, family business owners should ensure that they have a good lawyer who understands the complexities of running a family business and can help to ensure that the divorce is handled as smoothly as possible.
10 List Of How To Protect The Business From A Marital Breakdown
Business owners who devote their lives to create a thriving business are ill prepared for family breakdown and divorce. How do you address your biggest uncontrollable risk – a divorce? The following Top 10 tips will help shepherd your family towards a successful transition for your children, your family and your enterprise.
- Keep your family dispute out of court. Going to court should be a means of last resort. In court, your personal and sensitive business information becomes public. More importantly, judges have the power to order share transfers, a forced sale of the business, and in some extreme cases, issue freezing orders. You have no control.
- Use Collaborative Law or Mediation. In these private out-of-court systems, you constructively address tax and financial issues associated with a potential transfer or sale of corporate or personal assets, in a setting that is mutually beneficial. This could be a plan to transition the business if it is no longer possible to jointly operate with your former spouse, or a method of payment of a financial obligation that minimizes the tax implications.
- Think outside of the box. Use the Harvard negotiation model called “Interest-Based Negotiation” that is used in Collaborative Negotiations, to generate solutions that may be outside of the rigid ambit of the legal model but better adapted to the particularities of your business and situation. Examples of creative thinking include delaying a capital payment to address cash flow issues, or, if it’s a joint business, continuing to co-owning for a period of time with clearly defined roles to ensure a smooth transition.
- Provide full financial disclosure. Whether your family dispute is before the court or not, both spouses need to produce financial disclosure. Withholding disclosure undoubtedly raises suspicions that you are hiding something which makes the process more complicated. Financial disclosure includes your income, assets and liabilities, but also sufficient information about your business to allow an expert to value the business and revenue stream. In Collaborative Law or Mediation, you can work together to educate the professionals about the sensibilities of your financial situation.
- Consider hiring a joint business valuator. The business will need to be valued. Providing financial statements and income tax returns is usually not sufficient. You can minimize the cost of this step if you and your former spouse hire a jointly selected business valuator. The alternative is for the business owner to hire one expert to perform a valuation and for the other spouse to hire another expert to comment on or critique the valuation, a process which costs more and leaves the spouses with two different values and no resolution.
- Manage your loss of productivity. You will need to devote time to meet with your legal team, to produce financial disclosure and legal documents and to attend negotiation meetings. You may be stressed and more tired. Get support from partners and staff to safely take the business over to the other side of a separation.
- Cooperate, cooperate, cooperate. No one wins when there is a fight. Don’t be the one fueling the conflict.
- Don’t involve your children. Whether your children are old or young, statistics continue to demonstrate the extent to which they are impacted by a breakdown of their family unit. It is best to leave them out of the conflict.
- Take the high road. Don’t fight all the fights; pick your battles. People around you need to see that your divorce will cause as little disruptions to the business as possible. This can be achieved if you exercise restraint and focus on the issues that need to be resolved without letting emotions run wild.
- Plan ahead. A pre-nuptial or post-nuptial agreement together with a solid estate plan are an important foundation for a successful modern marriage. It’s not about depriving the other spouse of their fair share in the assets. It’s about planning an orderly distribution of wealth in case of unfortunate eventualities such as a separation or a death. Spouses can craft practical steps to be taken if there is a separation such as the selection of an expert and a method to value the business. If it’s a joint family business, they can plan who will operate the joint business in the event of a divorce.
Being an experienced family law lawyer, accredited mediator and certified Family Enterprise Advisor™, I suggest unique strategies and out-of-court solutions to the complex legal, financial and human matters related to separation or divorce for professionals, high-net-worth families and business owners.