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When the Family Business and Divorce Intersect

When a messy split affects both your business and your family, here's how to cope.

Without question, couples must divide it all when going through a divorce—everything from the wedding china and furnishings to retirement accounts. For couples who own a business together, those are the little things. It’s dividing the value of the business—whether that’s profits or debt—that will take center stage.

High-stakes, big-asset divorces where a business is involved adds an extra layer of complexity, says Jim Mueller, partner with Verner Brumley Mueller Parker PC. “There’s a lot more you need to think about,” he says. “When a business is involved, it’s not your everyday divorce. Most often, it’s the most highly contested asset in the divorce. After all, if the couple could agree on everything, they probably wouldn’t be getting a divorce in the first place. Most likely, they don’t want to keep working together, but in some cases, it makes the most financial sense. The primary goal should be to not lose the value of the business in the divorce, as it is likely what will continue to support both parties in some way once the divorce is final. The fees involved in fighting over everything you have accumulated—lawyers, forensic accountants, and CPAs—can add up quickly. Before you know it, there won’t be much left to divide. While challenging, the best outcome usually involves both parties looking at the bigger picture.”

A good family lawyer will work with high-level, experienced CPAs who will investigate and audit to determine the value of a business, Mueller says. A good family lawyer will also work hard to keep the business aspect of the divorce as private as possible so that its employees and clients aren’t privy to what’s going on in their employers’ personal lives. “We try to keep the business side of the divorce as separate as possible,” he says. “And, by working with experts who can determine the value of the business, we can better determine a fair division of assets and a settlement that both parties agree upon. This is often a far better outcome than a judge making this determination.”

The primary goal should be to not lose the value of the business in the divorce, as it is likely what will continue to support both parties in some way once the divorce is final.

For a couple who is eager to remove the other owner, i.e., the spouse, from the business, Mueller offers a word of caution. The business may lose value if the face of the business is no longer connected to it. “Let’s say the wife wants the business,” Mueller says. “Consider what it would be like if the husband and all of his experience and connections are removed from the business and a similar business across the street is in operation. What is your business worth at this point? Often, we’ll discover that the business isn’t worth as much without its owner, or both owners, and that both parties need that business for their livelihood. Sometimes a couple will decide to divorce but keep running the business as usual as it is in their best financial interest, and in some cases, the settlement may include creation of securities and payments in the future for the spouse who leaves the business. Therefore, it’s important to hire professional accountants to determine the value of the business, and why, so the best decisions can be made for both parties. It keeps the emotions out of it and deals with the financial facts.”

If you are considering a divorce and own a business with your spouse or fall into the category of high- net-worth, complex divorce, Mueller suggests considering the following tips.

Seek the counsel of an attorney early in the process. “Even if you haven’t talked to your spouse about the divorce, but feel it is highly probable, seek an attorney who can help you now with advice on gathering information about your bank accounts and assets. It doesn’t hurt to be prepared. In other words, know where your money is.”

Make sense of prenuptial agreements, trusts, deeds, and estate matters. “Eventually, we will have to deal with this. There are so many pieces to an estate, so find out what you can about it early. Of course, when a couple marries all they plan on is bliss, but that doesn’t always last. You have slept a lot in 20 years, so it’s not easy to remember what was decided upon decades ago. Gather as many documents as you can.”

Seek the advice of an experienced family law attorney with access to a variety of estate experts and a proven record in handling complex divorce cases. When shopping for an attorney, above all seek board certification and check to see if he or she is a member of the American Academy of Matrimonial Lawyers—an added certification that indicates the attorney’s peers recognize his or her expertise. Typically, well-established, larger family law firms will have a team of experts in a variety of financial, tax, and estate-related fields to assist with asset identification and division during a complex divorce.

Learn more about Verner Brumley Myeller Parker PC here.


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