Small business owners face challenges during a divorce

Posted by Lauren S. CohenOct 28, 20190 Comments

When New York couples decide to divorce, the financial consequences can be significant for anyone. However, when business owners with closely held companies are involved, the changes can be even more consequential, not only for each spouse's personal finances but for the future of the business. A divorce can have an impact on the company as a whole and could even lead to its sale or closure as a result of hard decisions during property division. In many cases, investors are requiring startups to show that all partners have prenuptial or post-nuptial agreements covering property division in case of a divorce.

A prenup is one way that people can avoid a severe dispute over a business during a divorce. This does not mean that the financial settlement in such divorces will not be substantial; however, the business itself and its shares may be excluded. In some cases, the company may be divided between both spouses. If they cannot work together or come to a buyout agreement, the company may need to be sold to settle the property division issue. Even when a buyout agreement is possible, the company itself may need to take on debt in order to pay the price for sole ownership.

When business partners are involved, a buy-sell agreement can be an important part of planning. This kind of agreement lays out the procedure by which the other partners can buy out one partner for any reason. This can remove the business itself from the divorce settlement, with the financial payout subject to asset division.

There is a range of unique concerns for entrepreneurs who decide to divorce. A family law attorney may advise and guide a divorcing spouse about reaching a fair settlement on legal issues, including property division and spousal support.