How a Family Business Can Complicate Divorce

Posted on May 22, 2024

How a Family Business Can Complicate Divorce

As if divorce wasn't challenging enough on its own, when a family business is thrown into the equation matters of asset division and settlements become even more complicated. If you and your spouse have both invested time, labour, or capital into your existing business, it's important that you navigate divorce proceedings and negotiations tactfully and strategically. While working with a family lawyer is vital during this time, it's even more helpful to hire a team equipped with a divorce lawyer who also specializes in civil litigation. When divorce and business intersect, the legal issues become more complicated, so a family lawyer who is also a civil litigation lawyer can make all the difference in your case. At Karrass Law, Robert Karrass and the team are equipped to help you manage this difficult time to help you get what is rightfully yours. 

If you're heading into divorce and need more insight into how a family business can complicate proceedings, read on. 

Who Does Your Business Belong To?

Like with any complex division of assets, the first question is ownership. Determining whether the business is marital or separate property is crucial. Marital property includes assets acquired during the marriage, while separate property consists of assets owned by one spouse before the marriage or received as a gift or inheritance. If the business was started during the marriage with joint efforts and finances, it is likely considered marital property and subject to division. However, if one spouse owned the business before the marriage, it might be deemed separate property. The distinction can be murky if the business appreciates in value due to the efforts of both spouses during the marriage. In this case, you will need the guidance of a civil litigation lawyer at Karrass Law. 

How Does the Valuation Change?

Valuing a family business can be a complex and contentious process. Unlike straightforward assets like bank accounts, determining the worth of a business involves assessing tangible and intangible assets, future earning potential, and goodwill. Disagreements can also arise over the valuation method used, such as asset-based, income-based, or market-based approaches. Each method can result in significantly different valuations, and choosing the most appropriate one requires expert analysis and often leads to disputes between the divorcing parties.

How Are Income and Employment Affected?

Both spouses may be involved in running the business in many family businesses. Determining each spouse's income and role in the industry post-divorce can be contentious. One spouse may try or offer to buy out the other's share, which necessitates a clear understanding of the business's value and future prospects. Additionally, if one spouse intends to continue working in the industry while the other does not, negotiations around salary, dividends, and compensation become issues that require resolution. To ensure you're compensated fairly, trust Robert Karrass and the team at Karrass Law for expert division of assets advice and representation.

How Does Divorce Impact on Business Operations

Divorce can significantly impact the day-to-day operations of a family business. Tensions between spouses can spill over into the workplace, affecting employee morale and productivity. In situations where both spouses remain involved in the business, establishing clear boundaries and roles is essential to ensure smooth operations. Alternatively, finding a suitable replacement or restructuring the business can be challenging if one spouse decides to leave the business.

What Agreements Are in Place?

Before conceiving the notion of divorce, many couples create pre-nuptial and post-nuptial agreements that lay out how assets will be divided in the case of divorce. While these agreements are designed to facilitate separation processes, they can often make the division of assets more complicated if there are errors or if there is a fundamental change since their creation. To ensure your agreements are in your best interest and represent the best interests of the business, talk to a civil litigation lawyer who understands how to navigate contract law for legal advice. 

Navigate Business & Divorce with a Family Lawyer in Toronto

When you're facing divorce, navigate the situation and take actions that protect your best interests by booking a consultation with a team of civil litigation lawyers who specialize in family law. Our award-winning lawyers and experienced team are dedicated to providing you with the highest level of representation so you can protect what's rightfully yours. 


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