Family businesses jeopardized during divorce

Family businesses jeopardized during divorce

Families can build great things together. From loving homes to lasting memories, successful family unions breed positive outcomes. Here in Michigan and across the country, many families endeavor to start businesses with individual family members serving as directors and managers of the enterprise. While some family businesses thrive, others suffer as family relationships breakdown through divorce.

Divorce proceedings can be contentious, challenging experiences that push the emotional fortitude of their participants. During a divorce, the court hearing the matter will attempt to complete a property division that serves the interests of the separating spouses. When a family-owned business is involved, determining how to divide the business asset can result in confidential business information being shared.

A court may attempt to place a value on the business, and to do so it may require that the business’s tax records, financial forecasting, compensation and borrowing information be released for review. A business may seek to protect such information in order to maintain or gain a competitive market edge, but despite the business’s interest in confidentiality, the judicial order to release such data will likely trump the business’s preferences.

While most proprietors of family-based businesses fail to anticipate the financial challenges the business will face in the event the family breaks up due to divorce, planning ahead for the worst can prevent the business from failing along with the marriage. Business documents can set forth how the enterprise will be valued and can provide an agreed to clause that prevents sensitive business financial data from being shared in a public court hearing. While a family law attorney may assist parties working through the emotional challenges of a divorce, financial experts may help family business owners proactively protect their self-built business enterprises through careful corporate management.

Source: Grand Rapids Business Journal, “Can you ‘divorce-proof’ your family-owned business?” Paul A. McCarthy, May 3, 2013

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