Divorce is never easy, and it gets more complicated when a couple begins a successful business after their marriage. Massachusetts is an equitable distribution state which means the business equity is a marital asset even if only one person works in the business. There are very few people who can separate and divorce while still able to manage working closely with the other spouse on a daily basis. Splitting the business or leaving it to one party is generally a necessary result. Using mediation rather than going to court can be an effective way of ensuring both parties continue to profit from the successful business, and it is the best way to ensure future support payments as your divorce wends its way through the family law court.
One Solution: Splitting the Business Down the Middle
There are some businesses where splitting a company is relatively easy, so that and each spouse has their own territory. Mediation can help you decide which spouse gets a particular territory. Mediation requires both spouses be able to enter an agreement willingly. Each spouse would retain their own share of business, and they would negotiate physical territories so they do not steal each other’s customers. Massachusetts law supports such an agreement, and most judges deem it as a reasonable distribution of a family business.
Another Solution: Only One Partner Keeps the Business
Many businesses today require particular licenses, and splitting the business can’t be done if only one person has the licensing necessary to conduct the business. That does not mean their spouse has no beneficial interest in the business; yet if one spouse does not own the necessary license, that spouse cannot be a legal owner of the business. If a judge were to order the owner spouse who is still working in the business to buy out the beneficial interest of the other spouse, there may not be enough cash equity in the business to do it, and the business may have to be closed. If the business is closed, the non-business spouse can only get a share of the salable assets of a dissolved business, while the other spouse would be out of work. That would rarely be a suitable solution for the spouses.
Obtaining a Fair and Enforceable Agreement
The business asset will have to be valued by a professional qualified to determine its value, unless both spouses are well informed about the business and can intelligently agree on its value. It is imperative for the spouse who cannot own the business to obtain her or his fair share of the asset, and perhaps future profits, so it can be best to work out an agreement cost-effectively in mediation. While a judge will not force a person to re-open a business, a judge will order them to honor an agreement that they chose to make.
If you are a small business owner and have questions regarding options for splitting your business through divorce mediation, please call our office to schedule a consultation.