Accounting for Law

How divorce impacts a business

A divorcing couple who also own a business together may find the prospect of a future relationship untenable and decide to go their own separate ways — professionally as well as personally, Toronto family lawyer Kenneth Fishman tells

“The biggest concern for a separating couple who are business partners is will the business continue,” says Fishman, an associate with Basman Smith LLP. “Often, the business is their primary source of income. In most cases it’s going to be an uncomfortable situation for both parties to continue running a business together.”

Often, he adds, it is in their interest to find a way to keep the business going.

Fishman says the first consideration for many couples in this situation is whether one party will buy out the other from the shared business. The next issue is determining the fair market value of the business.

“And that’s where the disputes tend to arise because when both parties are equally involved in a business,they both may want to continue to run the business. The business can’t continue to operate if they’re going to have warring factions on both sides, both wanting to individually own the business,” says Fishman. “You want to allow for the business to be able to continue so, to the extent possible, a buyout is always preferable.”

A business valuator may be employed to provide the couple with an objective and independent assessment of the value of the business. That process will provide them with a jumping-off point to determine a dollar amount for a buyout, sale or transfer.

Fishman has seen many situations where a business was jointly owned and both were benefiting financially from it, but one party was more involved than the other. When a couple in that type of situation splits, the person who was more involved in the business may want to buy out the other. But the party leaving the business could require support to replace that lost income.

“There are also situations where they just can’t get along, or just can’t agree,” he says. “You have to look at whether the business gets sold to a third party or perhaps it gets liquidated.

“It’s really not a good idea to continue working at a business with your separated spouse. It’s kind of a War of the Roses-type thing in a business, it could turn volatile. That would be a very uncomfortable situation that should be avoided, if at all possible.”

In some situations, he adds, they may want to continue operating the business together. Fishman says that, too, is possible, if both parties are able to get past their differences and come to an agreement, or if they develop guidelines on how that business relationship will work.

To continue operating a business together, a separated couple will have to find some sort of peace and focus on the business and its success.

“It starts with them. They have to co-operate. If they’re not going to co-operate, it doesn’t work,” Fishman says.

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