When it comes to divorce, there are many aspects to consider during the process and the overall resolution. However, if you or your spouse own a business together or separately, this adds an extra layer of complexity.
During divorce in North Carolina, the ownership of a family business or businesses is often considered high-net-worth and property for equitable distribution. There could be some exceptions to this, so if you own a business, it’s important to work with a family law attorney who is skilled and knowledgeable in not only family law but also how businesses impact family law. Ashley-Nicole Russell is a Collaborative Family Law attorney who owns AN|R Law: A Negotiated Resolution with four locations in North Carolina in Greenville, Raleigh, Beaufort, and Wilmington. She is an award-winning business owner and was recognized as the 2017 Business Leader of the Year by the Greenville-Pitt County Chamber of Commerce. In addition to AN|R Law, she co-founded and co-owns law firms Michael & Russell in Wilmington and McLawhorn & Russell in Raleigh, Greenville, and Beaufort.
As a divorce attorney who experienced her own divorce nearly 10 years ago as a business owner, she is passionate about helping spouses who jointly own or individually own businesses during their divorce. AN|R Law is dedicated to providing clients with out-of-court resolution options through Collaborative Law, Mediation, and Settlement Negotiation. These methods are considered alternative dispute resolution proceedings in North Carolina and keep spouses and their families out of a tumultuous courtroom setting. We find that these types of divorce processes work well when dealing with high-net-worth settlements that involve business assets and property as well as high-debt situations and liability.
There are more business owners in 2023 than ever before, so divorces that include business distributions are becoming more common. You may not lose your business during divorce, but it could change in other ways. When a business is jointly owned because it was created during the marriage or when or when both spouses founded the business together, a divorce could impact overall operations and structure. In these situations, business owners are faced with big decisions to make. A buyout may be a desired outcome by one spouse, but what if the other doesn’t feel the same way? In those cases, as well as other circumstances, divorcing spouses may need to sell the business or continue co-owning the business. Let’s break down each option and what it could mean for each spouse and the divorce:
If one spouse is looking for a large payout from their participation in the business, or if one spouse wants to continue owning and/or operating the business, a buyout might be of interest. In this situation, a business valuation will determine what the business is worth and how much each spouse owns. This formula is typically business value equals assets minus liabilities. However, it might be a little more involved to determine how the shares of the business are split if it’s not 50/50. Once the valuation and ownership shares are figured out, one spouse may be interested in buying the other spouse’s share of the business. Depending on the valuation, this could be financially straining. In addition, there may be tax advantages and consequences so it’s important to work with an experienced attorney and financial professional during this process.
Sell the Business
In some cases, selling the business may be the best option for divorcing spouses. This may be the case if spouses can’t come to an agreement for a buyout, don’t want a buyout, or if they can’t afford to do it. This can also be an option if spouses don’t want to continue operating the business or working together. Oftentimes, selling the business could be an opportunity for both spouses to profit, especially if the business is high performing and desirable. Listing a business for sale can be done with the help of an attorney and a business broker. Although, finding the right buyer could take a while – sometimes even years. If the decision is to sell the business, the timeframe will need to be considered during the divorce process.
Co-Own the Business
Another option for divorcing spouses who own a business is to continue running it together. This may be a possibility for spouses who divorce amicably and are able to keep their personal affairs separate from their professional lives and careers. To make this work, the business may need to restructure to support a co-owning system – especially if both spouses work at the company and run day-to-day operations. It may also be beneficial in this case to reevaluate the business agreement and look to update it if needed. While co-ownership may work out initially after a divorce, there is always a chance that a spouse may want to sell their share, buyout the other share, or sell the business. The divorced spouses will need to revisit their options and consult with an attorney and financial professional to determine the best way to move forward as business partners.
It can be difficult – not to mention emotional – to approach these types of conversations during separation and divorce. Many businesses, just like marriages, begin without plans to end. However, it’s not a bad idea to consider an exit strategy as part of a business plan so you and your spouse are aware of your options from the beginning. In addition, there are a few other things a business owner can do before marriage and during marriage that could further protect their businesses if they and their spouse consider divorce in the future:
Typically speaking, if a business is started prior to a marriage, it could be classified differently than if the business was created during the marriage. A prenuptial agreement could help solidify this and lay out the terms of ownership. A prenup could be of interest for both the business owner and their future spouse. The business owner may want to add another layer of protection for their business if their marriage ends in divorce and/or the other spouse may want to protect themselves from any potential business liability or debt. Prenuptial agreements are drafted while keeping each business owner’s unique situation in mind. Distributing assets such as splitting a business during a divorce can be quite complex, so it will save you time and moneyto already have this determined through a prenup.
If a prenuptial agreement doesn’t include a business or if a business is started by one or both spouses during a marriage, a couple may be interested in drafting a postnuptial agreement. If the business was created during the marital relationship, it would need to be divided during a divorce. This is similar to division of a personal home, savings, and other assets. While it can often be difficult to think about while married, a postnuptial agreement can remove some uncertainty and stress if the marriage ends in divorce. This agreement can outline a plan for the future of the business. This allows you and your spouse to determine now how to handle the division of the business and other assets and liabilities.
The Benefit of Collaborative Divorce
Choosing to divorce with Collaborative Law allows spouses – with or without businesses and/or high-net-worth – an opportunity to work together to create their own divorce settlement that works for both of them. When dealing with a business, a Collaborative Divorce is a non-adversarial and effective way to divide property. The success of the process has received worldwide attention as Collaborative and the International Academy of Collaborative Professionals (IACP) were recently nominated for a Nobel Peace Prize. The process works differently than a traditional divorce. With Collaborative, the divorcing spouses will work collaboratively, along with their respective attorneys, to determine the details of their divorce. Since the process doesn’t take place in court or with the decision of a judge, the spouses and their attorneys will meet together for roundtable discussions, also known as four-way meetings. During these meetings, spouses have the ability to bring in additional experts in business, finance, and accounting as well as mental health and parenting who can serve as neutral third-parties to assist in the process. This option can benefit business owners by working directly with a specialist who has experience in financial planning and can help create a divorce settlement that works for both spouses. Another benefit of Collaborative Divorce is that it reduces conflict so business and day-to-day operations aren’t as impacted compared to a divorce through the litigation process. When a business owner chooses the Collaborative Process, they’re choosing a healthier divorce that will have less of a direct impact to their company. To learn more about Collaborative in North Carolina, the North Carolina Collaborative Attorney Network (NC-CAN) has plenty of resources on its website, www.nc-can.org. Ashley-Nicole is a founding member of the organization that serves families across the state of North Carolina.
If you and/or your spouse are business owners experiencing divorce, it’s important to work with an attorney who has wide-ranging experience in these types of divorce cases. Ashley-Nicole has over a decade of professional and personal experience with business ownership as well as Collaborative Divorce. She and her team can handle divorces that include the distribution of a company and high-net-worth as well as the drafting of prenuptial and postnuptial agreements. In addition to family law, AN|R Law offers services for business breakups and buyouts for business partners. This process can also be handled out of court since the Collaborative Law concept, Mediation, or Settlement Negotiation can be used.
AN|R Law is committed to settling conflict without involving the court system through our four North Carolina locations in Greenville, Raleigh, Beaufort, and Wilmington. You can learn more about working with AN|R Law: A Negotiated Resolution for Collaborative Divorce and other family law matters in North Carolina by reaching out to our office. You can call 252-702-4376 or fill out this online contact form.
Connect with AN|R on our social media accounts on Facebook, Instagram, and LinkedIn. You can also check out her book, The Cure for Divorce Culture, and listen to her podcast, “Divorce, Healthy!” which is available on all major listening platforms. If you’re interested in inviting Ashley-Nicole Russell to speak at your next event or conference, she is currently booking in-person and virtual speaking engagements for 2023. Please reach out to firstname.lastname@example.org to learn more about scheduling.