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How to Prevent Divorce From Threatening Your Family Business

Oftentimes a divorce is a threat to the survival of a family business. After all, getting through a divorce is an emotional and difficult process all on its own. The stakes are raised when a family business is involved, for both the divorcing spouses as well as any non-family members who are deeply involved in the business. Protecting your family business in the event of a divorce requires proactive planning, not reactive actions, but how can a family business effectively protect itself from the sometimes catastrophic effects of a divorce? A comprehensive divorce strategy is a good place to start.

There are many important items to address in a family business divorce strategy:

  • On the financial side of things, a divorce strategy should address both tax planning and the valuation of the family business. These things can greatly ease the monetary effects on the family business. The valuation of a family business is often one of the most contentious pieces of a divorce, so bringing in an expert appraiser who is capable of explaining to both parties how he arrived at his number is crucial in getting both parties to agree on the company's fair market value.
  • If the family business was established prior to the marriage, a prenup can be one of the best ways to ensure the family business survives the destructive legal haggling that frequently accompanies the divorce process. Prenups can be a touchy subject, but are crucial to entrepreneurs and those building family businesses (see last week's post: Prenups Aren't Just for Celebrities).
  • The divorce strategy should also consider the businesses employees and the impact of the break-up on the working relationships, especially if the divorce is antagonistic. Sometimes employees feel forced to take sides, which can take a terrible toll on the business and make it difficult to keep the business running smoothly. Often the question that is top of mind for employees is "what happens to us now?" The divorce strategy should attempt to clarify this to ensure that morale remains high and the business continues to function efficiently.
  • Ideally, the divorce strategy should also address how relationships will be handled - with clients, suppliers, banks, and joint partnerships. Laying this out in advance can help mitigate the uncomfortable discussions that will have to occur in the event of a divorce.
  • Lastly, agreeing on a collaborative divorce model in the family business divorce strategy can save piles of money that are often spent during a litigated divorce. Too many times a divorce will drain the funds of a family business and force them to close the doors. Privacy is another top reason that many business owners choose the collaborative divorce process. Many family business owners want to avoid subjecting their colleagues, partners, or other family members to depositions or testifying in court. The collaborative divorce process is all about privacy.

Divorces that involve a family business are very complex, and it is important to have good legal help. If you are interested in putting together a divorce strategy for your family business, please call us - we have expert family law attorneys who can guide you through the process.

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