Going through a divorce is never a pleasant process. Having to figure out a parenting plan and division of property is never easy, and something that can make the process even more difficult is deciding whether to divide your business in the case of divorce. When you’ve put in the hard work and expertise it takes to create a successful business, the last thing you want is for that to be taken away. Here are some ways to help you decide if and how to divide your business.
A business can be part of the marital estate when a spouse has, or both spouses have, an ownership interest. This interest is difficult to perfectly split, so there are a few different ways to go about it. The first, and most common, is a buyout. This is where one spouse will buy the other’s spouse’s interest in the business. For instance, if a business is owned 50/50 between the couple and a company valuation shows that the company value is $400,000, then one spouse will have to buy the other’s spouses ownership for $200,000. This process can be beneficial because it does not involve actually splitting the assets, and once the purchase is completed, the divorced couple no longer has to deal with this business together. This only works, however, if the buying spouse has enough cash to properly purchase the interest from the other spouse. If there is not enough cash, this ownership can be bought with some other liquid asset, such as cashing in an IRA or 401k. The buying spouse, however, will want to talk to their attorney and financial advisor to see if a buyout is possible.
Another option is co-ownership. One way to go about co-ownership is to continue operating side by side with your former spouse. This process only works if the divorce is amicable and the spouses can still respect one another as business partners, otherwise the business will suffer. Another method of co-ownership, however, is where one spouse can run the business while the other agrees to accept payments from future business proceeds as their share of the business. However, if the business does not turn a profit, this method can be a risk. Co-ownership, no matter how you do it, requires a certain level of trust, respect, and teamwork. If this is not something you and your former spouse can accomplish, then there is one more option.
The best way to make sure both spouses are compensated for their ownership share is to sell the business. This method is used often in divorce to split other types of property in the marital estate as well, such as agreeing to sell the marital home and splitting the proceeds. If both spouses are comfortable with selling the business andthe business is profitable and can garner buyers, then this could be the ideal option. However, if the business has trouble finding a buyer or the divorcing couple cannot agree on the value of the business, this can be difficult.
If you or your spouse have an interest in a business and are considering divorce, Carina Leeson, Esq. highly recommends the Collaborative Law Process to develop the best options for your family. She has successfully utilized this approach with a divorcing couple that allowed for a unique and custom-tailored result that they would never have obtained had they litigated their case. Additionally, their business and personal financials remained almost entirely confidential from a court public record.
Kendrick Law Group understands that no matter what road is taken to divide the business in a divorce, the process can be difficult and even emotional. Our attorneys have the expertise to guide you through your divorce process options and find the one that works best for you and your situation. Contact us today to schedule a consultation and learn more about how to resolve your family law matters.
Carina M. Leeson, ESQ.
Cowritten by Layne Cohen, Law Clerk