Family and Business: Dividing a Family Business After Divorce

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Family businesses are pretty standard in the United States. This is because many prominent families rely on the income of these businesses to sustain their daily lives. But family businesses can be pretty problematic, and it’s pretty often that personal problems become intertwined with the company.

There is a growing amount of family businesses in the U.S. It’s a typical business to have, especially for prominent families. It’s estimated that family households run more than five million businesses found in the U.S. However, unlike traditional businesses, family businesses are prone to all sorts of problems, and sadly, sometimes these problems are related to personal and family issues.

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The Weakness of Family Businesses

Many problems and issues can start within a family. Family members argue all the time, and these arguments can get very personal. This is why many experts believe that family businesses don’t last very long. It’s estimated that about 70% of family businesses fail before the second generation of owners can claim the businesses. This percentage of failure drastically increases the longer the business lasts.

So it’s quite clear that family businesses aren’t entirely set up for success. Only a few family businesses can exist for over ten years, and those that do are very iconic.

If you want to avoid these problems, hiring a couple of experts might be smart before starting a family business. The very first expert you should consider is a family attorney. These attorneys should discuss the common failures of family businesses, such as divorce. We’ll discuss more about that later. Another expert you should consider hiring is a business consultant. They should help you avoid common pitfalls that businesses tend to have during their first few years.

So what happens if a family business does run into common problems, specifically divorce?

Divorce in the U.S.

Divorce is considered one of the leading problems that every family has in the U.S. Considering that the country has one of the highest divorce rates globally, it’s quite probable that many family businesses are affected by such a problem.

When it comes to divorce and family businesses, many attorneys tell their clients: don’t do it. If you don’t think your partner can understand simple business law or don’t think you’ll be lasting long with your partner, don’t start a business with them.

Moreover, many business experts argue that starting a business with a partner is similar to gambling. It’s a high-risk and high-reward venture. If you don’t end up getting a divorce, then there’s a massive chance that the business will last long. However, if you get a divorce, you can quickly lose everything.

However, what if it has already happened. What if you’ve gotten a divorce and you’re wondering what’s going to happen with the family business. Well, there isn’t one true answer since every divorce is unique, but let’s try discussing all of them.

Family Businesses After Divorce

It Stays The Same

Some family businesses can stay the same after their owners have divorced. Of course, this requires a lot of work between the partners, but some family-owned businesses can truly work after that.

If your partnership can stay strictly business, then there’s a considerable chance that you and your ex-spouse can keep the business without changing its structure. Of course, this requires some talks with your attorneys, but if an agreement can be made to maintain the status quo, then why not?

This is the most beneficial conclusion for a family business after a divorce. But it’s quite rare to happen.

Dividing The Family Businesses

A more common conclusion to a family business after the divorce is the division of the business. Some partners don’t agree with each other, which comes from a business perspective. So by the end of the day, the company gets divided, but how does that work?

First of all, a third party needs to enter the scene. This third party must appraise the business and its value. There are many business appraisers out there willing to do this for you. Next is to get your attorneys involved. Finally, the contract must be reviewed to see how much the business is divided.

After the business gets divided between the two of you, then it’s up to you whether if you want to sell your part of the business or not. You can continue operations without your ex if you’d like.

Liquidation

The most common conclusion to a family business after a divorce is liquidation. Both partners decide to liquidate the company and start anew. They get their shares and walk away having minimal risk.

Divorce ends a business one way or another. So try to work out your relationship with your partner whenever you can. However, if you think you can’t handle it anymore, make sure you know what you’re getting yourself into by doing your research.

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