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How should you divide a business in divorce?

| Jan 2, 2020 | Uncategorized |

When it comes to dividing marital assets in divorce, most spouses think about assets like the family home, retirement benefits and the money in savings accounts. What spouses may not consider right away is what to do with the family business.

If both spouses have a stake in the business, it will most likely be considered marital property and will need to be divided in divorce. However, it may still be marital property if only one spouse operated the business. This may depend on the source of startup funds, the business’s change in value during the marriage and other details.

3 options to divide the business

If your business is marital property, you may need to have it valued, so you can make an educated choice how you may want to divide it. When it comes to splitting the business, there are generally three options:

  • Buy out your spouse (or allow your spouse to buy you out)
  • Sell the business and split the profits
  • Remain co-owners

Although it is an option, most divorcing spouses do not opt to remain co-owners. This may be because it can be difficult for ex-spouses to work effectively together without letting their personal feelings negatively impact their business. Deciding between the other options may depend on the particulars of your situation.

Pursuing the buy-out

You may not be able to control if your spouse wants to buy you out of the business or not. However, if you can afford to do so, you may choose to buy out your spouse. This option may require you and your spouse to have a third party value your business.

If you do not have enough cash or other liquid assets to pay your spouse half of the business value, you may need to consider other options. Maybe there is another asset, like the marital home, that your spouse may want to take in the divorce. Maybe you can finance the funds that you are short. Alternatively, your spouse may be willing to negotiate a series of payments instead of one lump sum.

Putting it on the market

If neither you nor your spouse want to or can afford to buy out the other, it may be necessary to consider selling the business. It is important to have a good understanding of what the business is worth. However, it can sometimes be difficult to find the right buyer, and the process of selling the business could take years. This option can also be ripe for conflict.

You or your spouse may disagree on who to sell to or what price to accept. You could also disagree on how the business should be run until it changes hands. You could be stuck with the challenge of co-owning until you receive an offer you can both agree on.

The best way to divide a business always depends on the situation. It can be difficult to determine what option to pursue, but a thorough understanding of your options can help.