What Happens to a Business When the Owners Get Divorced?

What Happens to a Business When the Owners Get Divorced?
The Siliconreview
24 Febuary, 2021

There are many couples throughout the United States who decide to open up a business together. What could be better? They get to work side-by-side, be their own bosses, and make a profit. For many, that is the definition of living the dream. However, that dream can quickly become a nightmare if some insurmountable problems in the marriage pop up. In fact, just being in business together can be a strain on a marriage as money problems and other business related issues become a part of office and home life. 

Divorce is messy enough as it is, but what happens when there is a business involved? This can add an extra layer of complexity and potentially hard feelings on top of the usual acrimony. Some married couples make sure to prepare for the possibility of divorce well ahead of time. However, the business is often something that was built together, but it will be forever changed by the circumstances of the divorce. Here are some of the potential outcomes when business owners get divorced. 

The Business Can Run With a Single Owner

In some cases, a business can continue on with one party staying as the sole owner, or bringing in another partner. This would involve buying out the other person. This can be difficult, since some businesses are built from the ground up, with both the spouses having an equal share of responsibility for it. A small business can almost be like a child. Gaining custody of it could involve a nasty fight if both want to keep their interest in it. It will be a big part of the settlement discussions. 

However, it may be the case that one of the parties would be making a mistake by trying to take over the business by themselves. For instance, perhaps the duties were that one of them handled the books, and the other was the chef, or the one who produced the product. In that case, the bookkeeper might have difficulty continuing with the business if they cannot find someone to do exactly what their partner used to do. It’s much easier to find an accountant than someone skilled at certain tasks. 

They Can Continue to Run the Business Together

There is no reason why a divorced couple cannot continue running the business together. As long as the divorce is not a bitter one, many couples choose this route. However, it is always best to carefully consider this option before taking the leap. It may seem like a viable solution, but emotions and the realities of living separate lives while still having a business connection can make things difficult. It might be important to try to keep business and personal lives as separate as possible. If you are a woman who has taken your husband’s name during the marriage, it might be a good idea to go as far as to get information about changing your name to cement that separation. Continuing with the same names will only cause confusion and possibly legal tangles down the road. 

If the divorce is not an amicable one, then attempting this is probably not a good idea. You may think you can keep things separate and even work out a way to never be on the premises at the same time, but issues will come up. This will not just further affect your personal relationship, but it will also affect the business itself. When the inevitable happens and you realize you shouldn't be working together, the value of the business will have plummeted, leaving you both in a worse position than when you first got divorced. However, you may be able to have one spouse end up as an absentee owner, without any real input on the day to day operations. They will just continue to receive payments as part of their interest in the business and as part of their marital assets. 

The Business is Sold, and Both Parties Walk Away

Perhaps the simplest solution is to sell the business and wash your hands of it completely. Both parties can get a lump sum of cash depending on the value of the business, and there will be no further entanglements. However, this can be a tricky option as well. For instance, one spouse may care about the business more than the other. They may not want to sell at all, which can lead to disputes. It may also be that the value of the business is at a low point, or the economy is slowed, which can make selling difficult. It may make financial sense to hang on to the business in some form until it starts to be valuable again. 

Divorce is hard, no matter what the overall situation is. Owning a business together adds more complexity, and possibly more animosity to the situation. What happens to your business will depend on the circumstances of the divorce, the value of the business, and the level of commitment to the business that you and your former spouse have.