Handling a Family-Owned Business in the Event of a Divorce
A business is an important asset for a family; it may be the largest asset that a couple or an individual spouse owns. For many families, it is extremely important that the business stay in the family. Consequently, if a marriage involves a family business, that alone is a good enough reason to discuss what to do with business if the marriage ends because a divorce could be disastrous for a family-owned business and the lives that it affects.
Statistics show that less than a third of family businesses survive from the first generation to the second. Less than a third of those survive from the second to third generation. Barely any make it to a fourth generation. While there are multiple causes for businesses to fail, a primary one is poor estate and family planning like failing to take into account the effects of a divorce. A Houston divorce lawyer can advise you regarding the precautions you can take with your family business if you are preparing to get married, already are married, or are beginning divorce proceedings.
Family-Owned Business and Prenuptial Agreements
Ideally, a couple should discuss how to handle a family-owned business long before divorce proceedings. Premarital or marital agreements can mitigate the damage a divorce can have on a family-owned business, its employees, and their families that depend on it for their livelihoods. A Houston property division lawyer can discuss with you the benefits of premarital and marital agreements concerning family-owned businesses.
A couple can come to an agreement on the following aspects of the family-owned business that will make their lives much easier in the event they divorce:
- Deciding whether to sell the business and split the proceeds
- Deciding whether to have a buy-out for one spouse to be able to acquire the other’s business interest so that the business can continue operating
- What methods and what experts to use to value the business, which is an important process discussed below
Valuing a Family-Owned Business
In the event that a couple divorces and a family-owned business is involved, the most important step will be the valuation of the business. Deciding what a business is worth and what it will be worth in the years to come are not easy calculations. Below are the two important steps that go into valuing a family-owned business:
- Selecting an expert. The divorcing parties must agree on an expert to perform the business evaluation. The expert should be impartial and independent. It can be useful for the couple to have a neutral, third party mediator select the expert who will perform the appraiser. Otherwise, the divorce proceedings could carry on too long, with each side questioning the other’s valuation until a court makes a decision that could be favorable to no one.
- Performing the valuation. It is best to leave the actual valuation to the expert, but it will involve a complex calculation using the business’s assets and income to predict its future value. Frequently, the appraiser will analogize the business to others of a similar size and history to predict what worth the business might have.
What happens to a family-owned business in the event of a divorce can have negative consequences for many people. Of course, the business affects the couple and its children, but such businesses typically employ other family members or others that they treat like family members. Contact a Houston property division attorney at John K. Grubb & Associates, PC if you are concerned about the effects of a divorce on your family-owned business.