The Family Business After Divorce

Family businesses often struggle in the period leading up to divorce. It can be hard to tell cause from effect: financial pressures can lead to marital pressures, and marital problems often carry over to the office. Divorcing co-owners are often distracted by the stress of the process and actively avoid each other. Communications break down, business arguments occur that are really proxies for home arguments and parties tend to put off difficult decisions because of uncertainty about the future.

However, people can navigate a divorce and continue working together in a family business. It takes extra effort and planning, but it can be done. Before the divorce is finalized, divorcing couple should consider the following:

  • Who owns what percentage of the business going forward? How much is each person paid? If one person is going to be putting in significantly more time or effort than the other after the divorce, many couples find it fair to give that person extra ownership or compensation.
  • Make sure the income stream from the business dovetails with support or maintenance obligations in the most tax-efficient way.
  • Map out both parties’ responsibilities to make sure as little as possible slips through the cracks. Maybe even tinker with titles.
  • Consider formalizing lines of responsibility if you need to clarify who is the boss.
  • Decide what kinds of action require both parties to agree.

At the same time, divorcing couples should commit to more structured interaction going forward:

  • Establish regular meetings, with formal agendas that both parties generate together, so that the day-to-day concerns of running the business are broken down into manageable pieces.
  • Consider working with a conflict coach if it may help to bridge communication styles.
  • Keep business and personal debt and finances as separate as possible.
  • Work with an accountant to set up the right internal procedures for unrelated co-owners.
  • Make accounting and finances transparent to reduce room for distrust. For instance, you both should get regular reports.

Also, other parties have a stake in the divorcing couple’s success, such as:

  • Banks that might still want both parties to be jointly and severally responsible for personal guaranties.
  • Customers and vendors who may wonder what is going on.
  • Employees, consultants and advisors who may have been caught in the middle between the spouses.

Finally, both parties should commit to rejuvenating the company. It may take time and effort, but striving together toward a common goal may help repair the frayed work relationship between former spouses.

An attorney or mediator with relevant experience may be able to help guide a couple through the process. Sometimes it even makes sense to bring in a specialist in addition to their divorce lawyer or mediator, since mechanically much of the agreement falls outside the divorce decree.

Although working together after divorce takes work, with the right structure and expectations in place many people manage it successfully.