Dividing assets during a divorce can be a complicated issue, and things can get messy very quickly. If you and your spouse have an ownership interest in a business, dealing with this asset can be especially tricky. If you are going through a divorce and have questions about how your business will be handled during the proceedings, contact one of our attorneys for assistance. In the meantime, this article will give you a brief look at the three most common methods for handling division of business assets in a divorce.
Buying Out Your Spouse
In most divorce cases that involve business ownership, one spouse will elect to buy out the other spouse’s interest in the business. The first step in this is valuing the business. You and your spouse will have to agree on a total amount that you believe the business is worth; our forensic evaluators can help to accurately determine this number, but ultimately, you and your spouse will have to agree upon the number before you can proceed with the buyout. Once you know how much your business is worth, you will need to pay your spouse for their share of the business in order to take sole ownership.
So, if you have a business that is valued at $500,000, and you and your spouse have 50/50 ownership, you would have to pay him or her $250,000 in order to buy their rights to the business. This can be done by transferring the lump sum to your spouse, or by agreeing to a structured buy—splitting up the payment into separate agreed-upon amounts to be paid at specified times.
If you don’t have the amount your spouse desires for their share of the business right now, you can also look into liquidating certain assets, like retirement accounts. Or, if your spouse wishes to retain your shared home in the divorce, you can use your share of the home’s value as a part of the buyout amount.
Co-Owning the Business
If both you and your spouse wish to remain active in the business, and you believe you can be continue running the business amicably, you don’t necessarily have to distribute your business asset at all. You can both continue working as business partners, even after the divorce is finalized. Of course, if your separation involved a lot of anger and hurt feelings, this can be difficult to do.
For many couples, co-ownership is not truly feasible. A successful business partnership requires trust and respect for your partner, and much of that can be lost with the dissolving of a marriage. However, if you genuinely believe you can continue to have a productive working relationship after your divorce, speak to your attorney about your options.
Another version of co-ownership involves one spouse continuing to operate the business while the other steps back, but continues to receive a portion of the company’s future profits. The second spouse would have to agree that these future payments would satisfy his or her share of the business assets. However, this can be risky for the spouse receiving the payments, as the business could stop turning a profit in future years.
Selling the Company
If you are unable to buy out your spouse, and co-ownership is not a viable option, then the best way to ensure both of you are accurately compensated for your share of the business is to sell the company and evenly distribute the profits. Liquidation of assets is a common method for dividing assets during a divorce; for example, many couples sell their marital home during a divorce and evenly split the profits from the sale.
However, when it comes to a business, this method isn’t necessarily as straightforward as it might sound. For starters, you might struggle to find a buyer for your business, which will draw out the process indefinitely. You might also be going through your divorce during an unfavorable downturn in the economy; in this case, it might be best to consider continuing to co-own and operate the business until the market improves and you can receive a better payout.
Each of the methods described above is a common way for couples to divide a business during a divorce, and each has its own pros and cons to consider. Be sure to meet with an attorney who has experience in handling division of business assets. If you need expert assistance in this matter, contact our law offices today, and we’ll help you to determine which method of business asset division is the best option for your divorce case.