While divorce is always stressful, no matter who the person is that is going through it. When it comes to couples or a spouse that is part of a family business, the stress in these sorts of proceedings can be even more significant. They are involved in a business with family members, and so now it is not just their own individual livelihood that they have to worry about, but those of their families. Wondering how a divorce can impact your business partners and family members is a very stressful topic to take on. However, working with a Chicago divorce attorney with experience in this area is sure to put your mind more at ease as they explain the process and how it works.
Income and the Family Business Owner
Business owners can often produce more money than a regular W-2 wage earner, and the way the income is used and how expenses are paid is very different than that of a regular wage earner. In some cases, the divorce of a business owner may be what attorneys would consider a “high asset” divorce matter. High-asset divorce matters are those that generally involve property of a substantial value.
A business, on paper, may have a value that is worth a number of years of the income the business generates. Sometimes these individuals have invested their money in different ways, such as through stock or investment accounts, real estate, investments into other businesses, and more. While there is not a finite number as to what sort of estate constitutes a “high net worth” divorce or a “high asset” divorce, it is generally a divorce where the assets are substantial, even if that is only “on paper.”
For instance, when folks owns a business together, it usually has some sort of value. The more income that is derived from the business, generally speaking, the more value the business has (unless it is saddled with debt). When multiple family members are owners in this business, it can be hard to determine what the value is. Additionally, just because someone has a share in a family business doesn’t mean they necessarily have the amount of cash lying around which would be required to buy their spouse out of the business. The business is theoretically worth money, but if someone has to buy someone else out of it, the cash may not be available to do so. So, it requires creative and strategic planning to come to an agreement and figure out a settlement agreement for everyone (a lot of times, this may involve a payout over a period of time).
The Family Business and Marital Assets
One issue to investigate when the dissolution of a marriage involves a family business is figuring out if the share of the business awarded to the owner-spouse is, in fact, marital in nature. A number of questions arise:
- Are there agreements the parties entered prior to the marriage, such as a premarital agreement, which indicates the classification of the business?
- How about a post-marital agreement regarding the same?
- Are there operating agreements between the business owners and are they enforceable?
- Was the share of the business gifted to the owner-spouse and their spouse, or was it only gifted to the owner-spouse?
- Did the owner-spouse gift their share to the marriage?
- Did the owner-spouse purchase their share in the business?
All of these questions are those which need to be answered to best assess the classification of the share in the family business as marital or non-marital.
Creating a Plan for the Future of the Business
It is the attorney’s job to try and help the client reach the best possible outcome when dividing a business or protecting a family business during divorce proceedings. The best way for an attorney to do that is for the client to provide transparency as well as documentation regarding what they believe the classification is of the business. The attorney and client work together to formulate a plan and then work together to execute it.
The client should have an idea of what they want to do going forward – are they looking to sell their share of the business to generate money to buy the other spouse out? And if so, would they stay on as an employee or contractor of the business? What would that mean for their income and earnings going forward, and how would the court view a potential reduction in income as the result of something like this?
Involved in a Family Business and Planning to Divorce?
These situations are pretty unique, so it is best to have a conversation with a divorce attorney about how they can assist you if you are involved in a family business and contemplating divorce, so they can give you specific advice as to what you should do, going forward.