Most family businesses and legacy planning for those businesses are created at a time when all the participants (usually the husband and wife) share a common vision or goal. The business may be structured as a corporation, partnership, a limited liability company, or such other business entity that is expected to provide shelter from creditors, advantageous tax treatment, and/or estate planning benefits. But what happens to a small business owner when the family collapses if the couple gets divorced?
It is not uncommon for a spouse to first learn that he or she is not actually an owner of the business during their divorce proceedings. While he or she may have an interest in the business by virtue of their marriage, he or she may be precluded from making decisions and reviewing important financial records. During this period while the divorce is pending, the spouse in control may potentially sell, transfer, or encumber the business with debt as he or she start their preparation for divorce. When dealt this hand, the best option for the spouse who has no control of the business may be to file for divorce or file appropriate motions in a pending divorce in order to gain some control of the situation.
Similar problems can arise when the next generation involved in a business marries. By virtue of marrying one of the family members, a new spouse may have generated an interest in the family business. Without careful preparation and a well drafted prenuptial agreement, that new spouse may eventually be able to demand payment for the increase in value of the business during their marriage. These situations are rarely planned for but often the type of blind spot that leads to trouble down the line for the family business.
Even if the family business is kept within the family, frequently the second or third generation will fight over members of the family not receiving equal profits but who have equal ownership interests in the business.
It is easy to see how these types of problems might occur when the family members who founded businesses often do not anticipate these problems and do not plan for them. While not every circumstance can be anticipated or resolved in advance, it is wise to anticipate conflict and draft provisions into your business documents, whenever possible, to serve as a procedure for conflict resolution. Oftentimes a provision that allows for alternative dispute resolution, valuation methodologies, and buyout provisions, are preferable to leaving the children or spouse with no other option other than to sue one another when fighting over a business interest. The attitude when dealing with your family business should always be to plan for the worst and hope for the best.
Board Certified Marital and Family Law Attorney Charles D. Jamieson understands that divorce is an extremely sensitive and important issue. Thanks to extensive experience and a focus on open communication, Attorney Jamieson adeptly addresses the complex issues surrounding divorce while delivering excellent personal service. To discuss divorce in Florida, please contact The Law Firm of Charles D. Jamieson, P.A.The Law Firm of Charles D. Jamieson, P.A. or call 561-478-0312.