Knowledge Base

Dissolving Hearth & Shop:
            What Happens When
                Business Partners Divorce?


March 1, 2006
Written by Staff at The Centre for Mediation & Dispute Resolution

Dissolving Hearth & Shop: What Happens When Business Partners Divorce?

In the typical divorce, there are few real surprises. Property is divided up, support is calculated and imposed, children’s schedules are fashioned. And so it goes. Contentious? Maybe. Difficult? Maybe. Frightening? Maybe. But there is closure, at least most of the time.
The most obvious exception to this scenario occurs when the couple is tied, not only by marriage, but also by business. Here, we are not speaking of the general population of families in which there is a business entity. Rather, we are speaking of couples who not only live together but also work together. Here, the plot intensifies.

Does one person keep the business? Can the business afford to buy out the other one’s share? If so, when and at what price?

Do both parties continue to work together and co-own their enterprise? If so, how do they split their personal lives and remain professionally entangled?

What if the relationship does not stand-up to the pressure? After all, business relationships breakup all the time. Wouldn’t a business strained by personal tensions have less chance of survival? And if so, will the personal situation have already affected the “health” of the business, thereby reducing its saleability? Its value? What to do? What to do?

Not surprisingly, divorces in which the parties are business partners pose a host of complex questions. Obviously, there is no standard answer. Consider the following.

John and Tammy Peters owned a photography store, specializing in weddings, Bar Mitzvahs, and the like. John ran the store; Tammy did the photography. When divorce became an inevitability, the couple struggled with how to deal with their business. On a scale of 1 to 10, with 10 being the highest, this was a number “2” business. As a couple, they made a respectable living, being able to afford a nice house in the suburbs, regular vacations, and camp for their two daughters. Yet, this was a cash poor business, leaving no reserves and therefore no money for one to buyout the other’s share. And, even if there was cash, what would the other do? Neither John nor Tammy wanted to start again. Neither wanted to be the other one’s competition. Besides, they had complementary, not similar, skills. The decision for them was a fairly easy one. Working together would not be too difficult. They had mediated their divorce and how to handle their business relationship. They considered different scenarios including death and buyouts. They stayed working together, but did so after carefully planning and much thinking.

Perhaps the Peters were an atypical couple; after all, the percentage of divorcing couples who mediate is, in and of itself, a relatively small percentage of the divorcing population. Yet their accomplishment was quite monumental. Not only did they have a “good” divorce, but they also preserved their business and, with it, the ability for the family to remain self-supporting.

Obviously, most couples have to separate professionally and personally. For these individuals, mediation offers an opportunity to focus on ways to preserve the health of the business while ensuring that each party receives “value” for his/her contribution. The “good” solution is different for each couple and each business, but all “solutions” need to take into account the financial and personal well-being of all family members.

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