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Protecting a Family Business From Disruption During a Divorce

Ending a marriage is hard enough, but when a family-owned company is involved, there is potentially more at stake. If you and your spouse have decided to get divorced, you may be wondering how you can protect your business from disruption. Not only is the business one of the assets to be divided, but the divorce has the potential to affect the orderly operation of the enterprise. Regardless of your differences, you and your spouse should focus on maintaining the continued vitality and value of the business.

Connecticut follows a rule of equitable distribution that makes any assets owned by either or both spouses subject to division in a divorce, regardless of when the assets were acquired. That includes a business in which either spouse or both spouses have an ownership share.

In all such cases, it is essential to obtain a business valuation. With a closely held business, valuation is not a simple matter. Although the goal is to determine how much the business could be sold for in an arm’s length transaction, valuation experts may take different approaches. The three main methods are (1) weighing assets against liabilities, (2) measuring past, present and projected earnings and (3) comparing the business’s value to similar entities in the same market. Typically, each spouse retains an expert to conduct an independent valuation and any conflicts between the two resulting valuations must be resolved by agreement or by the court.

Once a thorough and accurate valuation is made and agreed upon, there are a few options for how to address family business ownership during equitable distribution:

  • Continue business operations — Just because you and your spouse are divorcing doesn’t mean that you are required to sell the business. It may be possible to continue operations and keep the business relationship with your spouse intact. If so, each spouse keeps an ownership share.
  • Buy out your spouse’s interest — In the event that one of you would like to continue running the business, you might buy out the other’s interest based on the fair market value.
  • Sell the business and divide the assets — If it is not possible to continue business operations amicably after the marriage has been dissolved, it may be best to find a buyer so you can obtain the maximum sales price while the business is fully operational.

Another important step if you hold business assets is to have a Connecticut divorce attorney review a prenuptial or postnuptial agreement that you and your spouse have entered. It likely includes provisions that will impact what happens to the business and its proceeds should the owners split up.

Business ownership presents special issues in a divorce but they are manageable if handled properly. At Needle | Cuda, our divorce and family services attorneys provide advice for clients in Fairfield County, Connecticut. Call 203-557-9500 or contact us online to schedule a consultation at our Westport office.

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