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What Happens to the Family Business in a Minnesota Divorce?

What Happens to the Family Business in a Minnesota Divorce?

July 6, 2023

By Johnson/Turner Legal

What Happens to the Family Business in a Minnesota Divorce?

July 6, 2023

By Johnson/Turner Legal

You built your family business intending to provide for yourself, your spouse, and your children. The plan was to run it until you both retired, at which point you would pass it on to another family member. This wasn’t a bad plan, but it didn’t account for your relationship with your spouse turning south.

Now, you are facing a divorce and worrying about what will happen to the business that you run with your soon-to-be ex-spouse. Who will gain possession of the business, and can you still pass it down to your children? Will you have to sell the business? Our experienced divorce lawyers are here to answer these questions and more.

Minnesota Divorce Law

Under Minnesota law, marital assets are divided equitably between divorcing parties unless you have a valid prenuptial agreement or a postnuptial contract in place at the time of the divorce.

However, an asset like a family business often can’t be divided in half in any way that will allow the business to continue to be profitable. Even if this is true for you, remember that all is not lost. The court has several options for fairly assigning ownership of a family business.

A Divorce on Good Terms

The best-case scenario is one where you and your future ex no longer wish to be part of a romantic relationship but remain friends. In this situation, you may not need to meaningfully split up the family business.

You and your ex-spouse will each retain a 50% ownership stake in the business and continue to run it the same way it was run before. The only difference is that instead of all profits going to your joint account, you split the proceeds. This is the least disruptive possibility. It also increases the likelihood that you will pass the business on to your children.

Unfriendly Divorces

In an unfriendly divorce, continuing to run the business together is probably not an option. When this happens, the courts will need to determine how much of the business is joint property.

In other words, the court will evaluate whether the business was started before or after the marriage. If started before the marriage began, whichever party owned the business beforehand may independently have a non-marital interest in the business.

In this case, the court will likely grant ownership to the original owner. If you are the original owner, you may need to pay your ex-spouse for the value of their share of the business, though. Because your assets were managed during the marriage, your ex-spouse probably has some stake in the business.

The courts and your divorce lawyer will attempt to determine the precise value that your ex-spouse is due. Then, your ex will be granted additional assets from your divorce or you will have an equalizer payment due to them to balance the scales.

The other possibility is that the business was started during your marriage. In these instances, it is considered marital property, meaning your spouse legally owns half of it. If you want to own it fully after the divorce, you will have to pay your ex-spouse half the value of the business.

If you can’t afford this from personal funds or divorce assets, your divorce lawyer might be able to negotiate a payment plan. Typically, the courts will support this because judges often prefer to keep family businesses in the family.

Selling the Business

If neither owner wishes to continue to run the business, you can choose to sell. Selling your business makes it easy to split the assets, but it does prevent you from passing it down to later generations (unless you sell it to a family member).

A court might also order you to sell your business if you and your ex-spouse can’t agree to a fair settlement. This is the worst-case scenario if one of you wanted to keep it and one you should attempt to avoid, especially if you want future generations of your family to inherit the business.

If your business is sold, it could take some time for the sale to complete. This means that you might need to wait months or even years to finalize the sale,. This is an awkward situation and one that you likely want to avoid.

Book a Quick Guidance Call

If you own a family business and are considering divorce, take a few minutes to speak to the experienced Minnesota divorce lawyers at Johnson/Turner Legal. Our team of attorneys has decades of experience helping clients like you get through difficult times. Contact us today to book a quick guidance call with a friendly divorce attorney.


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