How to Protect Your Family Business During Divorce

 Posted on February 13, 2025 in Divorce

There are 32.4 million family businesses across the United States. These businesses are the backbone of the American economy, with about 35 percent of all Fortune 500 companies being family-owned. Small businesses, including many family firms, employ almost half of all U.S. workers, and family businesses are significantly less likely to lay off employees during tough economic times.

Many family firms are interested in transferring the business to future generations and in transferring their values as well. If one of the family members divorces his or her spouse, it could effectively halt the transfer of the business or the values that back it.

In fact, when divorce happens, it can disrupt the continuity of a family business, even threatening its future. Protecting your family business during a divorce requires a solid understanding of Wisconsin asset division laws, as well as a highly experienced Brookfield, WI family law attorney.

How Are Assets Split During a Wisconsin Divorce?

Wisconsin is a community property state  – one of nine in the United States. Under community property laws, marital assets are split exactly down the middle, regardless of extenuating circumstances. The remaining states operate under equitable distribution, meaning marital assets are split fairly, although not necessarily equally. So, under the community property laws in Wisconsin, all marital assets should be split equally between the spouses.

Will a Family-Owned Business Be Split During Divorce?

The question becomes whether the family business was treated as a marital asset during the marriage or whether it began as a separate asset and remained a separate asset. If the business existed before the marriage – perhaps as a business founded by one spouse’s parents or even grandparents – then the business may be considered separate property, not subject to division during divorce.

A business that one spouse owned as a sole proprietor prior to the marriage in a situation where both spouses substantially contributed to the operation and improvement of the business during the marriage could be subject to division. This is especially true if the business is in both spouses’ names or if marital funds were used to make improvements to the business during the marriage.

In fact, a sole proprietor business owned by one spouse before the marriage could only be absolutely protected from division during a divorce if there is a valid, enforceable pre or postnuptial agreement stating the business is separate property. Absent such an agreement, it falls to the business owner to prove the business has remained separate property.  A business started after the marriage will almost certainly be considered a marital asset and will be divided during divorce regardless of which spouse started the business or operated the business.

If a business was owned by one spouse’s parents, grandparents, or other family members before the marriage or if a business was owned by one spouse prior to the business, in some cases, the owner spouse may be forced to offer the other spouse another marital asset – like the marital home – to offset his or spousal business interests. It will be necessary to have the business valued by a professional to determine the amount of such an offset.  

Protecting Business Interests

There are few better ways to protect a family business than with a pre- or postnuptial agreement. Such an agreement must be drafted so that no coercion or deception is implied and executed voluntarily and knowingly based on accurate disclosure of each party's business and personal assets.

Another way to protect a family-owned business during divorce is through an irrevocable trust managed by a trustee. A "buy-sell" agreement can also protect the stability of a family-owned business, giving one spouse the option to buy out the other in the event of death, disability, divorce, or departure of one spouse.

Contact a Waukesha County, WI Divorce Lawyer

If you have no agreement that will protect your family business during your divorce, it is a good idea to speak to a knowledgeable Waukesha, WI divorce attorney from Bucher, Wolff & Sonderhouse, LLP. We are a highly client-centered firm ready to help you through this difficult time. To schedule a free consultation, call 262-232-6699.