Family Business and Divorce

Family Business and Divorce

What happens when mom and pop get a divorce but neither one wants to leave the shop?

Being an advisor to a family business can be both challenging and rewarding. You’ve attained your certification, you’ve built a strong practice from helping family-business owners understand balance sheets, ROI and other archaic terms that they never knew they needed to know. But, have you considered what your guidance and advice may be if the completely unexpected happens?

What if your best client tells you that he’s going to seek a divorce from his spouse—and his spouse also happens to be his business partner?

What do you do then? What advice do you give?

Maybe this scenario has already happened to you and you managed, somehow, to work your way through it. Maybe this situation hasn’t occurred, but you should be prepared to handle it when it does.

A 2007 Census Bureau report said that roughly 3.7 million businesses are owned by a husband and wife team. With the divorce rate at a staggering 50 percent, the situation is far more common than many people realize. With some planning, a couple who once promised “until death do us part,” may be able to continue the family business.

Too often, clients are so busy getting their businesses off the ground that they don’t think about what might happen if one of the founders gets divorced. The problems are magnified if the businesses’ co-founders divorce each other. For family-owned businesses, run by married couples, a poorly dealt with divorce can mean bankruptcy court is in the future.

Here are five things that you, as a business or financial advisor, should keep in mind to share with your clients:

Create an Agreement
 
Most business partners sign a shareholders agreement to lay out a guideline of what to do should one partner decide to sell. Married couples seldom do. The agreement should spell out in detail how they will split the business if either decides to leave. The key is to draft an agreement that puts the interests of the business above those of the individual shareholders.

Talk to the Employees

Almost like children in a divorce, employees often pick sides. If that occurs, the business can quickly fall apart. Couples should come up with a mutually agreeable story that they can share when they reassure staff that the issues are being dealt with and the company will not be affected.

Compartmentalize

Divorce is more than a legal split. Compartmentalize the issues—legal, financial and emotional—so they don’t get mixed up. Determine what the issues, needs and preferable outcomes are. When a romantic relationship is breaking up, the tendency is to allow personal issues to interfere with business relationships—and the other way around. Compartmentalizing can help untangle the threads allowing for time to set specific goals and make concrete, and separate, plans.

Define

As the relationship changes, both parties should draw clear lines around their roles and responsibilities at the work place. Redefine the relationship and identify what task(s) each person will take care of. This step will help avoid micromanaging each other. With clearly defined roles and communication, working together doesn’t necessarily have to mean constantly collaborating—which can also be emotionally taxing and lead to more emotional reactions.

Encourage Mediation

Divorce mediation is an alternative to hiring expensive lawyers. Mediation allows the couple to work with a third-party in negotiating all issues, including the status of the business.

Divorce mediation is 90 percent less expensive that using attorneys and is confidential and private. The mediation can be scheduled to meet the needs of your clients, instead of the demands of the court.

If your clients agree to your suggestion to seek divorce mediation, the mediator will want to meet with the couple both individually and together. This method will help to focus and identify the situation as well as to gain an understanding of what is important to both parties.

Mediation works because it’s designed from the start to reach an agreement. Everyone is kept on track towards reaching a mutually agreeable decision and the process is conducted with the help of a trained, professional mediator

 

Bruce Provda is a veteran divorce attorney in New York.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish