When Your Family Business is Divorcing

In 2017, the Harvard Business Review found family-owned businesses are more innovative than other companies despite their smaller research and development budgets. The study also found family businesses tend to have a longer-term business-plan outlook; they look in terms of generations, as opposed to five or ten-years outlooks. Even further, these businesses inspire more trust, provide more stability, and garner stronger commitments from their employees than employees in non-family owned businesses. 

Yet, family-owned businesses come with unique challenges—what happens in the case of divorce? The family-owned business does not have to be owned by the divorcing spouses to be affected by a divorce. When a member of a family-owned business goes through a divorce, the unknown financial impact for the individual owner creates uncertainty in the future of the business, for owners and employees alike.

An agreement for a limited liability company or shareholder agreement for a corporation can insure stability for your family-owned business, in the case of owner divorce or death, and can guide your company leadership during this time. By planning prior to any of the life-changing events, an owner can control issues including, but not limited to, whether a spouse will be awarded shares of the company, whether a spouse can force a sale, and what the impact will be on the employees. Texas is a community property state, which means there is a presumption everything a spouse owns, whether held jointly or not, is subject to division by the court. Without these agreements in place, the ownership interest subject of the divorce is out of the hands of the company—it will instead be decided by a judge or jury.

Generally, in a business owned by spouses, either spouse may seek injunctive relief at the beginning of the divorce proceedings, to maintain status quo during the pendency of the divorce. Without a previous agreement in place, a trial court, without any true knowledge of your business, can order which spouse will pay the bills, run payroll, and make business decisions. The trial court orders can also include restraints on changes to your business: freezes on hiring/terminating employees, maintaining current clients, fulfilling orders, and maintaining contracts. Injunctive relief may include anything necessary to ensure the business continues to run smoothly without disruption. A previously signed agreement can prevent any such actions and ensure you, the owner, decide how your business will operate in the unfortunate instance of the divorce or death of an owner.

Rosenblatt Law Firm has extensive experience drafting the necessary agreements to keep your family business stable during times of stress and uncertainty. Our firm also has experience handling divorces for business owners going through these situations. Whether you are planning ahead, or presently facing this situation, Rosenblatt Law Firm can help.