Corporate Custody: What Happens To A Family Business During A Divorce?

Posted on: 24 January 2023

A divorce is the end of a marriage. It doesn't have to conclusively mean the end of any partnership—although it often does. If you and your spouse are planning to divorce, and are in a partnership where you operate a small business, what becomes of that business? 

A Business Partnership

The dissolution of a marriage doesn't necessarily mean the dissolution of a business partnership. This is very much a subjective decision. Not all marriages end with animosity, and if you and your spouse believe you can remain on good terms—sufficient for co-managing your business together on an ongoing basis, then there's nothing to legally prevent the continuation of your business. However, its value must be accounted for in the division of your assets.

Ownership Structure

A small business run as a partnership does count as an asset and must be included in each party's property pool—a formal list of all material and liquid assets. What may change in the ongoing operation of the business is the formalisation of each party's interest. This is something that a solicitor who specialises in family law can draft during the mediation phase of your divorce. For example, while it may have previously been informally assumed that each spouse has a 50 percent stake in the business, you may wish for this to be properly defined by determining a share structure for your partnership. Even though you're dealing with a business enterprise, the enterprise is part of a couple's assets, and so must be assessed under family law principles.

Ending A Business Partnership

Not all divorces are amicable, which can preclude the continuation of a business partnership. For some couples, the end of their marriage equals the end of their business relationship. This can be handled in a number of ways. One party may wish to buy the other party out of their share and continue to operate the business. This buy-out can involve a cash transfer (an actual purchase), but not necessarily. Because you are divorcing and each party has created a property pool, there may be space for negotiation. For example, one party may be willing to give up their interest in the business in exchange for a greater or total share of another major asset—such as property. Total sale of the company to a third party, with the division of the proceeds depending on current stakes in the business, is another option.

The best way to address a business partnership operated by divorcing spouses depends on the existing structure of the business. And of course, it also depends on whether you and your spouse are perfectly content to stay business partners. Reach out to a family law firm to learn more.