Navigate this complex process with experienced legal counsel
Ending a marriage is always difficult. Ending a marriage that is also a business partnership is even more difficult. When your career and finances are closely intertwined with your spouse's, untangling them can be a nightmare. These are situations where having the right divorce attorney can make all the difference.
Our law firm has extensive experience helping business owners deal with transitions in their personal lives that spill over into their businesses. Here's what you need to know.
First, remain professional at work
It's easy for professional boundaries to become blurred at family-owned businesses, but if you and your co-owner are getting a divorce, you need to assert those boundaries now more than ever. While you are at work, stay focused on work.
Communication is critical. If employees are worried that your divorce will affect the business and possibly their jobs — which is a valid fear! — then address their concerns with patience, compassion, and candor without blaming your spouse or crossing professional lines. Likewise, you may need to proactively communicate with clients or customers (especially longtime, ongoing clients) to reassure them that they will continue receiving your product or service.
Obviously, while your divorce is pending, it may be more difficult for you and your spouse/business partner to make decisions for the business together. You can't control your spouse, but you can commit to remaining professional and putting the company's best interests first in those decisions. Keep discussions of the divorce outside business hours and insist that work time should be focused on work. Also, keep in mind that even though your marriage didn't work out, there's a reason you are business partners: your spouse likely has skills and abilities that were needed for the business, and you can't let your personal conflict cloud your professional respect for those skills.
In addition, be realistic about how the mental and emotional toll of the divorce might affect your ability to run your business. This affects everyone differently; for some, work may be a welcome respite from the challenges at home, but for others, it may be tough to focus on your business during this time. Don't be afraid to delegate more tasks and hand off some of the day-to-day to a trusted employee (but make sure they are appropriately recognized and compensated for that work, of course).
Set a realistic goal for how you want the company to end up
Broadly speaking, there are four possible outcomes for business division when the owners divorce:
- One spouse buys out the other. This is likely the most common outcome: one spouse buys out the other's share of the business and runs it as a sole owner, with the other spouse getting their share of the assets.
- The business is split in two. Depending on the nature of your business, there may be a sensible way to divide your partnership without too much disruption. For instance, if you and your spouse run an accounting firm together and each have your own clients, you may simply go your separate ways, with each set of clients going to your new firms as appropriate.
- The company is sold, and the proceeds are divided. If neither spouse wants to or can afford to keep running the business, then it can be sold to a new owner, with the money from the sale divided between the spouses.
- The co-ownership continues beyond the divorce. There's no law that says you can't still be business partners after you end your marriage. While uncommon, this can be a viable option if your divorce is amicable and your business partnership remains strong.
There are several questions you should ask yourself when deciding which of these options makes sense for your business:
- How involved are you and your spouse in the organization's day-to-day operations? For example, does one spouse run the company while the other receives passive income, or is it a more hands-on partnership?
- Is it financially feasible for you to be the sole owner of the business? Remember to consider the division of your other assets, increased personal expenses (such as maintaining a separate residence), child support, and spousal support when assessing your financial situation.
- Are your spouse's skills or professional relationships essential to the organization? Are yours? Will you have to take on another partner to handle all aspects of running the business?
- Is your company likely to sell for a fair price on the open market?
- If your share of the business is sold or bought out, what are your career prospects? Will you start another company, take on consulting or freelance work, or seek traditional employment?
- Do you have an existing prenuptial or postnuptial agreement that affects how the business will be divided?
If you and your spouse/business partner are on the same page, then this doesn't have to be contentious. For instance, if one of you ran the company and the other is merely a silent partner, it may not be too difficult for the business to stay with the spouse who ran it. But finding a solution can be more difficult if you built the company together and are equally emotionally and financially invested in its success. Things also get more complicated if you have an additional business partner or partners, if your children or other relatives work for your company, or if there are disputes regarding how the business is valued or whether assets are marital or separate property.
Get an experienced divorce attorney to help you navigate this transition
Again, even if your divorce is generally amicable, the implications of a divorce when you own a business together are massive. You need a comprehensive legal plan to ensure that both your life and your enterprise are well-situated for the long term. In addition to resolving the division of the business itself, you need to consider the business when deciding other aspects of the divorce, such as child custody and spousal support. You also need a lawyer's assistance with any changes to your business agreement to reflect the new nature of your relationship.
The stakes are high in a divorce with a co-owned business, and you don't want to go into this situation blind. Make sure you have good legal counsel. We have extensive experience representing business owners in divorce and family law matters. We know how Illinois law applies to your situation and how to navigate your path forward. Contact Courtney Clark Law P.C. today for a free consultation with an experienced divorce lawyer.