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How Would a Divorce from a Business Partner Affect the Sale of My Business?

How Would a Divorce from a Business Partner Affect the Sale of My Business?

If divorce is an issue when selling a business, owners usually split the proceeds of any sale equally, so getting the best price and terms available for both sellers is critical. Taking advantage of the expertise of an experienced business advisor and broker is essential to the best possible outcome.

Dissolving a partnership due to a divorce is an emotional event and frequently requires selling a business owned or operated by the two people.  Disagreements sometimes interfere with the operation of the business and often threaten to break up families. Business partners, sometimes best friends since grade school, no longer agree on the best growth plan for their business.  I’ve experienced a situation where two brothers who really never wanted to run Mom and Dad’s business couldn’t agree on division of labor and profits. And, I have watched as four siblings running a family business held a meeting while one member, after being coaxed to join us, sat sideways rather than face the group at the table. Needless to say, the impact of situations like these cannot be hidden from employees and customers. 

As part of a recent referral, I was asked to help value and testify about the marketability of a manufacturing business caught up in a divorce dispute.  This was a very strong business that really had not been impacted by the divorce, as only one partner ran the business.  If you are in a situation like this, you should work with a broker who can avoid taking sides in the dispute and evaluate the business from the point of view of the market.  Since in this case the owners would split the proceeds of any sale equally, it seemed that the best solution for both sellers was to get the best price and terms available. 

  • One of the partners had hired a regional valuation firm as an expert witness who supplied a detailed report of their findings. 
  • I agreed to go to court to testify about the value and marketability of the business, trying to avoid an adversarial relationship with any of the parties. 
  • The valuation firm used somewhat different valuation methods than I had chosen, but once I reconciled the differences in method, the values were nearly the same. 
  • The valuation firm had no direct experience in actually selling businesses, so I was better able to testify about the real-world marketability of the business. 
  • I provided additional support by bringing term sheets from banks willing to finance the deal at my suggested price along with a profile of what skills and cash resources a buyer would need. 

In the end, the judge ordered the business to be sold, and I represented both partners in the transaction.  This required that I copy both parties, their divorce attorneys as well as transaction attorneys on deal updates and all offers and negotiations during the entire selling process. 

Timely communication is critical

Timeliness is a special challenge in transactions complicated by divorce.  Divorce is an “evergreen” problem.  The business partners will continue to be married until the divorce is granted, no matter how long it takes.   Business deals, on the other hand, do not age well.  Business conditions can change suddenly for both buyers and sellers.  Transactions have a short fuse, and once a deal blows up, there is often no way to put it back together.   

In the process of selling this particular business, we encountered nearly 100 buyers, some corporate “strategic” buyers and other individual entrepreneurs.  Buyers generate questions that need to be answered by the operating partner in the business.  This means that there was an unequal amount of contact with one of the partners.  Special effort should be taken to let the non-operating partner know that they are represented equally, always with the goal to maximize the proceeds that they would eventually split. 

Right now, it is a sellers’ market.

In the end, the business was sold at full price, just within the 10-month time limit set by the court.  The partners received four offers in total, some of which had provisions such as earn-outs which were very difficult to structure in a way that would fall equally on both sellers. The best offer turned out to be bank financed with the sellers getting most of the proceeds in cash at closing. 

At Sunbelt, Minnesota’s Largest Seller of Companies, we are accustomed to managing deals with a number of “third parties” involved, such as landlords and regulatory agencies – and divorce attorneys. While business sales can at times involve heightened emotions, partnership breakups seem to multiply the effect; divorce will push the emotional needle even farther. Buyers are also wary of the risk that conflict and emotion can bring to deals. They need to be reassured often that they will not be caught up in some future litigation. 

Regardless of whether you select Sunbelt to work with – you should definitely be in contact with a business advisor/broker who has experience in your market, your industry, and with this set of circumstances.

Clayton Wendt
Business Broker

cwendt@sunbeltmidwest.com
612-843-0076