Divorce is never easy, but when a family business is involved, things become even more complicated. Not only do you have to deal with the emotional toll of separating from your spouse, but you also need to figure out what happens to the business you’ve built together. Massachusetts has its own set of rules when it comes to divorce and asset division, making it critical to understand your rights, responsibilities, and options.

Understanding Marital Property and Asset Division in Massachusetts

Massachusetts follows an “equitable distribution” model when dividing property during divorce. Equitable distribution doesn’t necessarily mean a 50/50 split but rather a fair division based on various factors, such as each spouse’s contributions, financial needs, and future earning potential.

If the family business was started or acquired during the marriage, it is typically considered marital property under family law. Even if the business was started before marriage, a portion of its value might still be subject to division if it grew in value due to the efforts of both spouses. Factors like financial investment, time spent working in the business, and contributions to its growth will all be considered in determining how it gets divided.

Determining the Value of the Family Business

Before making decisions about what happens to the business, you need to establish how much it’s worth. Business valuation is a complex process that usually requires the help of a financial expert. There are three common methods to determine business value:

Asset-Based Approach

This method calculates the value of all business assets, including equipment, real estate, inventory, and intellectual property, while subtracting liabilities, which is often used for businesses with significant physical assets.

Income-Based Approach

This method focuses on the business’s earning potential. A financial expert will look at past revenue, profit margins, and projected future income to determine a fair market value.

Market-Based Approach

This approach compares the business to similar businesses that have been sold recently. The sale price of comparable businesses helps establish a fair valuation for your own. Once the business valuation is complete, you and your spouse will have a clearer idea of what’s at stake and how the division might play out.

Possible Outcomes for the Family Business

After the valuation, you must decide what happens next. There are generally three main options for handling a family business during a divorce in Massachusetts.

One Spouse Buys Out the Other

If one spouse wants to keep the business, they can buy out the other’s share, often requiring liquidation of other assets or arranging a structured buyout over time. If neither party has enough liquid assets, a loan may be needed to facilitate the buyout.

Co-Ownership After Divorce

In some cases, divorcing spouses choose to continue running the business together. While this may seem impractical, it can work if both parties maintain professionalism and have clearly defined roles. A well-structured agreement outlining decision-making authority, financial distributions, and exit strategies is crucial.

Selling the Business and Splitting the Proceeds

If neither spouse wants to keep the business, selling it and splitting the proceeds may be the best option. Selling the business is often the cleanest break, but it may not always be feasible if the business is difficult to sell or if market conditions aren’t favorable.

Protecting the Business Before and During Divorce

Proactively protecting a family business can prevent legal headaches in the event of a divorce in Massachusetts. There are several strategies to safeguard business interests before and during the divorce process.

Using a Prenuptial or Postnuptial Agreement

One of the best ways to protect a family business is through a prenuptial or postnuptial agreement. These legal documents can specify what happens to the business in the event of divorce, reducing uncertainty and legal battles.

Separating Personal and Business Finances

Mixing personal and business finances can create complications during divorce. Keeping clear records, maintaining separate bank accounts, and paying yourself a reasonable salary rather than reinvesting all profits back into the business can help establish clear boundaries.

Setting Up a Buy-Sell Agreement

A buy-sell agreement, also known as a business prenup, is a contract between business partners that outlines what happens if one owner leaves due to divorce, death, or other circumstances, which can prevent a divorcing spouse from taking over a share of the business.

Legal Considerations and Finding the Right Attorney

Divorces involving a family business require skilled legal representation. Working with a Massachusetts family law attorney experienced in the business asset division can make a significant difference in protecting your interests. Your attorney will guide you through financial disclosures, negotiations, and potential court proceedings to ensure the best possible outcome.

Negotiating a Fair Settlement

Divorcing spouses can resolve business-related issues through negotiation, mediation, or litigation. Mediation is often preferable because it allows both parties to reach an agreement without costly and time-consuming court battles. However, if negotiations fail, a judge may ultimately decide how the business is divided.

Seek Legal Support

Divorce is complicated enough without the added stress of dealing with a family business. Understanding Massachusetts law, getting a proper business valuation, and exploring all available options will help you navigate this process with confidence. The key is to approach the situation with a clear strategy and the right team of professionals to ensure a fair and equitable resolution.

Whatever route you decide to take, making informed decisions will protect both your financial future and the legacy of your business. Call Martino Law Group, LLC, at (781) 531-8673 today to schedule a free consultation with our team.