family business Archives | Cordell & Cordell

Crain’s Chicago Business Features Joe Cordell’s Family Business Survival Guide

Crains-ChicagoCrain’s Chicago Business newspaper, the city’s premier source of business news, interviewed Cordell & Cordell principal partner Joseph Cordell about the significant damage a divorce can do to a business.

In “Family business and divorce: a six-step survival guide,” Mr. Cordell cautioned that for family-owned businesses run by married couples, a poorly handled divorce can be a one-way ticket to bankruptcy court.

Because the value of the business is critical in determining how much a departing spouse receives, it’s best to divorce before you expect a business to really take off, according to Mr. Cordell.

“The best time financially for a guy to consider divorce is not when the business is doing well but when it is doing poorly,” Mr. Cordell said. “When you know your marriage is awful and you’ve just been limping along, the best time to do it is when you can least afford it.”

To learn more ways to protect yourself and your business read the full article, “Family business and divorce: a six-step survival guide.”

 

Protecting a business during a divorce

The process of divorcing a spouse can often take more than an emotional toll on the individuals who are involved, as assets can get tied up between the spouses during the split, hurting a business if one exists.

Forbes provided an example with what could happen to a business during a divorce.

According to the news source, if a business is worth $6 million prior to marriage and is worth $12 million following the split, the former spouse of the owner could be entitled to half or more of the $6 million appreciation that occurred while the two individuals were together.

This asset division that favors the former spouse instead of the business owner can be prevented by the use of a marriage contract or a prenuptial agreement.

Forbes reported that a proper contract that is signed at the beginning of a marriage can prevent the $6 million appreciation from going to the spouse who doesn’t have any ownership, as the pre-marital property does retain its character during the marriage due to the right legal documents.

This may be a wise move, considering the divorce rate is 41 percent for first marriages in the U.S., according to Divorcerate.org.

A prenuptial agreement can save the family business after divorce

Family-owned businesses are the backbone of the American economy and the communities they call home. However, a divorce in the family can rock the foundation of these businesses, especially in states with no-fault divorces in place, according to Forbes.

In these states, all property, including the family business, is considered marital property and must be divided equally. But even in states without no-fault divorce systems, the family business can pose many issues in a separation because it is often the most valuable and most illiquid asset in the marriage. It is rare for the business to survive in tact or without a substantial loss in value.

According to Forbes contributor Charley Moore, the best way to save the business is to have a prenuptial agreement in place. This legal document will easily clear up how marital property of shared ownership will be dealt with if a break-up occurs.

The National Federation of Independent Business states that in most cases, a business’s equity is split evenly when a prenuptial agreement is not present, but other considerations will be taken account in the division, such as whether the couple started the business together or if one spouse came on later as an owner.