Family business report: Will your family business be a casualty of a divorce?

Treating divorce as a personal matter when you have a family business could underserve the needs of all involved

With marriage enjoying a success rate below 50%, you might want to consider that, when you enter into business with your life partner, your business could end up as a casualty of divorce.

Yet few businesspeople actually do take this into consideration, believing it to be a sign of poor faith, or feeling such an outcome is not likely.

It can be difficult to separate emotions from pure business decisions. Taking steps earlier rather than later when a marriage starts to break down could provide a mechanism to save the business. For those professionals advising family business owners, consider who is your client – one or both of the family members or the family members and the family business?

It has often been said that well-written agreements sometimes make for better partnerships. When you consider family-run businesses, there can be substantial reluctance to enter into a buy-sell or shareholders agreement between spouses.

For a divorcing couple, the business might survive the divorce only to fail because of the “forced union” of business partners and a lack of clear goal setting and communication processes.

The style of divorce you choose – mediation, collaborative or litigation – can have a significant impact on the end result. Speak with your legal advisers to ensure you choose the process that serves you best.

While divorce is often seen as a personal matter, the impact of divorce on families and extended family can be significant. The impact on a family business can also involve the employees, creditors, suppliers, shareholders, other stakeholders – even down to the adviser relationships. For a couple who shares professional advisers, will the relationships stay the same once the couple is divorced? In many cases they don’t.

Most businesses have difficulty attracting, developing and training great staff through to next-generation leadership (family and non-family businesses alike).

When couples goes through divorce, there’s likely to be a sense of uncertainty experienced by their employees as they wonder whether they will still have a job. Will the business need to be sold to satisfy a division of marital assets? Will your key employees stay?

Like it or not, employees are going to have questions, even if they don’t have the courage to ask them. It can be a challenge to decide what to share (excluding personal stuff) and what not to share. Uncertainty can impact productivity. Ongoing communication can help reassure those involved.

Lenders, suppliers and vendors may have questions about the founders’ attention to the business while they address the time-consuming matter of divorce, yet all the while, the business still has needs that must be addressed. They could end up asking for more security, limiting access to credit or, in some cases, calling the loans.

So how can the business be helped?

Mature businesses understand the importance of an independent board of advisers, not only for the independence they offer, but for the accountability they can foster.

Many small businesses cannot afford to pay a board of advisers; it is possible to establish an unpaid board for the sole purpose of helping the business as it transits through the divorce process, helping keep the founders’ attentions on the ongoing needs of the business. For more mature businesses, a conflict-management committee could also prove invaluable.

The team of professional advisers that help look after both business owners and the business’ needs can be a great resource as well. While not all of the legal, accounting, insurance or investment advisers may feel comfortable taking on this role, it can be refreshing to find those who are willing to help. If both spouses are active in the business, the emotional and personal financial considerations are likely to be exacerbated.

While the marriage of a couple who owns a family business may fail, with good planning, the business does not have to be a casualty.

Good governance structures combined with open communication practices and committed professional advisers can help the business survive when challenged by the headwinds of divorce.

Treating divorce as a personal matter when you have a family business could underserve the needs of all involved. Be careful of advisers who offer prescriptive solutions.

Consider a multi-disciplinary team approach to encompass the needs of the divorcing couple and the needs of the family business.

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