Divorce is rarely straightforward, but when you and your spouse own a business together, things get even more complicated. Not only are you dividing your personal lives, but you’re also untangling your professional partnership, assets, and financial future.
Below, our friends from Vayman & Teitelbaum, P.C. discuss what happens when you divorce a business partner.
Whether you run a family-owned shop, manage an LLC, or share ownership in a professional practice, it’s essential to understand how family law handles business interests and how to protect both your livelihood and your peace of mind.
Joint Ownership: When Business Becomes Marital Property
In many states, businesses created or built during the marriage are considered marital property, regardless of whose name is on the registration documents. Even if one spouse contributed more to the business on a day-to-day basis, the law often views that growth as a joint effort, especially if the other spouse helped indirectly, such as managing the home or providing financial support to the business.
If the business existed before the marriage, the increase in value during the marriage may still be subject to division, depending on whether marital funds or joint efforts contributed to that growth.
Three Common Outcomes In Divorce
When a divorcing couple shares a business, the court (or the parties through settlement) usually selects one of three main paths:
- One Spouse Buys Out The Other
This is the most common route. A professional valuation determines the business’s worth, and the buying spouse compensates the other, either with cash, property, or a structured payout over time. - Sell The Business And Split The Proceeds
If neither spouse wants or can afford to take over the business, it may be sold and the proceeds divided. While this can be emotionally difficult, especially for long-standing family businesses, it offers a clean financial break. - Continue As Co-Owners
Some couples remain business partners post-divorce, though this requires a strong working relationship and clear boundaries. It’s rare but possible with proper legal agreements and mutual trust.
The Valuation Process: Know What It’s Worth
To divide a business fairly, it must first be professionally valued. Courts generally require input from a financial expert or forensic accountant who examines:
- Business income and cash flow
- Market comparisons
- Tangible assets (equipment, inventory, real estate)
- Intangible assets (goodwill, branding, customer base)
This valuation can be complex and even contested. Having an experienced divorce attorney with access to financial experts is crucial to protect your interests.
Protecting The Business From Disruption
If you’re both actively involved in the business, divorce proceedings can disrupt operations, lower morale, or confuse employees and customers. Here are a few tips to maintain stability:
- Communicate with staff carefully and professionally (with legal guidance).
- Avoid making major changes to operations during the divorce process.
- Create a temporary operating agreement that outlines who handles what until the divorce is finalized.
- Work with a mediator or collaborative divorce team to minimise litigation and keep the business running smoothly.
Planning Ahead: Prenups, Operating Agreements, And More
- If you’re currently married and own a business, or are planning to start one, it’s wise to protect yourself before divorce is on the table. Consider:
- A prenuptial or postnuptial agreement that defines how the business will be handled in a divorce.A well-drafted operating agreement that outlines ownership rights, buy-sell terms, and dispute resolution processes.
- Keeping clear financial separation between business and personal assets.
Divorcing a spouse who’s also your business partner is more than a legal issue; it’s an emotional and financial challenge that demands careful handling. The goal isn’t just to divide assets, it’s to preserve what you’ve built and prevent future conflict.
An experienced family lawyer can help you value your business, protect your interests, and find a solution that supports both your financial stability and your professional future.