What Happens to a Family Business in a Divorce?
July 9, 2025
Divorce is already emotional and complicated, but when business ownership is part of the equation, the financial and legal impact becomes even more significant.
At Rutkin & Wolf PLLC, we work closely with families and business owners throughout White Plains, New York, and the surrounding communities to help them through some of the most difficult transitions they’ll ever face. One of the more challenging situations we address is what happens to a family business when a marriage ends.
Because our practice includes both family law and business law, we’re in a unique position to walk clients through how a divorce may affect business operations, ownership rights, and long-term planning.
Whether you built a business together, brought it into the marriage separately, or operate a company with extended family, we’ll work to clarify what options you have and what outcomes you can expect.
Determining Whether the Business Is Marital Property
The first step in evaluating the future of a business during divorce is figuring out whether the business—or any portion of it—is considered marital property. In New York, marital property includes anything acquired during the marriage, regardless of who technically holds the title.
If the business were:
Founded during the marriage: It’s usually classified as marital property
Inherited or owned prior to marriage: It may be separate property, unless it was commingled or increased in value during the marriage
Built with contributions from both spouses: It’s likely marital, even if only one spouse’s name is on paper
Business law often overlaps with family law at this stage, especially when reviewing ownership documents, shareholder agreements, or partnership contracts. Legal professionals assess the full picture to identify what’s likely to be treated as marital property and what may remain separate. When necessary, forensic accountants and valuation professionals may be consulted to bring clarity to the matter.
Valuing the Family Business
Once it’s determined that the business—or a portion of it—is subject to division, the next step is establishing its value. Business valuation plays a critical role in any divorce involving business interests.
Qualified appraisers are typically brought in to assess value based on the type of business—whether it's a professional service firm, retail company, manufacturing operation, or startup.
Several methods may be used, including:
Asset-based approach: Adds up the total value of assets minus liabilities
Income-based approach: Looks at current and future earnings potential
Market-based approach: Compares similar businesses recently sold in the area
Because business value can be influenced by many factors, such as customer contracts, goodwill, intellectual property, and management structure, it’s important to choose the right method and make sure it’s well-documented.
A strong business law foundation helps place these figures into a legal context for use during settlement negotiations or a trial, if needed.
Determining the Spouse’s Interest in the Business
After the business has been valued, the next consideration is how much of it is subject to division. In some cases, one spouse may own 100% of the company; in others, only a portion may be owned, or both spouses may hold joint ownership. It’s not uncommon for both parties to have contributed in various ways—financially, administratively, or emotionally.
Factors that are typically evaluated include:
Formal ownership interest: Who is named on the business documents?
Contributions made: Did the non-owner spouse help grow the business, handle operations, or forego career opportunities?
Distribution of profits and reinvestments: Were earnings used for family expenses or reinvested into the company?
These elements help determine whether the non-owning spouse has a legal claim to part of the business. A thorough explanation grounded in business law and factual evidence is often necessary to either support or refute such claims.
Three Common Options for Dividing the Business
If a divorce court determines that the business—or a part of it—is marital property, there are typically three common options for handling the asset. Each comes with advantages and challenges depending on the specific situation and the business’s ongoing viability.
The three options involve:
Buyout: One spouse buys out the other’s interest, either with cash or by giving up other marital assets of equivalent value
Co-ownership: Both spouses continue to own the business after divorce, usually with a clear operating agreement and defined roles
Sell the business: The couple sells the company to a third party and splits the proceeds
Buyouts are generally viewed as the most straightforward option, especially when only one spouse is actively involved in the business. Co-ownership may work in cases of high cooperation, though it's relatively rare. Selling the business is often considered a last resort, particularly when it serves as the primary income source.
When the Business Has Business Partners
Additional complications may arise when the business includes other owners or investors. If structured as a partnership, LLC, or corporation with multiple stakeholders, operating agreements and bylaws will need to be reviewed. These documents frequently contain provisions limiting ownership transfers during divorce or requiring partner approval.
Common concerns we address include:
Restrictive covenants: Preventing outside ownership or requiring right of first refusal
Valuation disagreements: Between spouses and other partners
Continuity of management: Making sure divorce doesn’t interfere with daily operations
Loan obligations or personal guarantees: That may be affected by divorce-related asset transfers
Attorneys with business law experience are often called upon to protect both the stability of the company and the rights of divorcing parties. Business partners may also retain legal counsel to make sure divorce proceedings involving one partner don’t negatively affect the business.
Using Prenuptial or Postnuptial Agreements
Many business owners use prenuptial or postnuptial agreements to plan for this very situation. These agreements can designate the business as separate property, outline what happens to income or growth, and even waive certain spousal rights in the event of divorce.
If an agreement exists, legal counsel will typically examine:
Whether both parties had independent legal advice
Whether full disclosure of financial information was made
Whether the agreement is fair and reasonable under current circumstances
In the absence of such agreements, attorneys often advise on protective strategies for the future. Divorce may end a marriage, but business law considerations often continue, particularly when new relationships or ventures are anticipated.
Temporary Orders and Day-to-Day Operations
During divorce proceedings, courts may issue temporary orders that impact business operations. These directives are designed to preserve the status quo and prevent financial misconduct.
Temporary measures might include:
Restrictions on withdrawing large amounts of money from business accounts
Orders to maintain payroll and employee benefits
Prohibitions on selling business assets
Disclosure of financial records to the other spouse’s legal counsel
Legal professionals assist clients in complying with these orders while minimizing disruption. Keeping the business running during divorce is critical to financial stability and often reduces stress during an already difficult time.
Tax Implications of Dividing a Business
Dividing or transferring business interests during a divorce can trigger significant tax consequences. Tax professionals often collaborate with attorneys to evaluate how different settlement options affect liabilities related to capital gains, depreciation recapture, and income taxes.
Key tax-related factors include:
How business debt is divided
Whether retained earnings are treated as income
How spousal support and distributions are taxed
If new business entities need to be formed to preserve value
A thorough legal analysis helps divorcing parties understand how tax and business laws intersect, guiding decisions that maintain compliance and protect long-term financial interests.
When Litigation Becomes Necessary
Although many divorces settle outside of court, business-related disputes sometimes require litigation. Whether it’s a disagreement over valuation, control, or contribution, we’re ready to present a clear, well-supported case. Our experience in both family and business law allows us to explain complicated financial issues in plain English, both to our clients and to the court.
We’re always looking for opportunities to resolve disputes efficiently, but when litigation becomes necessary, we’re prepared to advocate strongly for our clients’ interests.
Speak to a Divorce Lawyer
At Rutkin & Wolf PLLC, we help families and business owners understand how divorce affects closely held companies. We’re approachable, easy to speak with, and committed to helping you understand every step. We serve White Plains, New York, and the surrounding areas, including the Bronx, New Rochelle, and Lower Westchester County. Speak to an experienced divorce lawyer who understands business law and cares about protecting your future.