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Three Things You Need to Know About a Family Business and Divorce

Small business is the engine that drives America. Often times divorce attorneys face a scenario where parties are divorcing and the means of income that has provided for the family is the small business. An example would be a doctor, lawyer, or landscaper. The obvious assumption most of us would make is that this would continue to be the source to maintain the parties (and their children) after the divorce.

However, sometimes this is not the case. There are three key points to consider if you have a family business and are contemplating divorce. First, a business entity (except a sole proprietorship) is its own legal person and is not a party to the divorce. What is subject to the divorce court’s jurisdiction is what the parties possess to control in whole or part of the business, such as stock shares. Thus, the business may sometimes operate in ways one or both parties do not desire during the divorce.

Second, a business may be valuable because of its name, possessions, and unique processes. In this case, the “goodwill” and ability of the business to continue with other owners means it can be bought or sold. This may be the way the parties “cash out” this marital asset and continue by investing the proceeds from the sale. However, some businesses, such as medical doctor or lawyer may have little value for anything other than the spouse who is so licensed and create a low value marital estate. This means one spouse may not obtain much financial benefit from its closure or sale.

Third, some small business, particularly those with multiple family members or owners, have buy-sell provisions that mandate shares or other indicia of ownership be sold at a fixed price upon a filing of divorce, or some similar provision, which would limit the value available to the marital estate on divorce.

In short, where a family business is a large part of the marital estate or way of existence of the parties, a party contemplating divorce should carefully select divorce counsel who understands this distinction—a family business is not necessarily a part of the divorce estate or worth a great deal of money despite its past ability to provide a high level lifestyle.

We hope you find this blog post useful. Ciyou & Dixon, P.C. advocates practice and handle divorce cases across the State of Indiana. We hope you find this information helpful to you. This blog post is written by attorneys at Ciyou & Dixon, P.C. and is not intended to provide specific legal advice or solicit services.

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