When a divorce involves spouses who also own a small business together, the divorce proceedings can be more challenging. Along with the overwhelming rush of emotions associated with an end of a marriage, both spouses might be concerned about the future of their business.
The following are three methods of dealing with a business during a divorce:
- With this method, spouses are able to own the business once the divorce is finalized. If both parties maintain an amicable business partnership, it’s possible to continue working together for the sake of the business. Unfortunately, this approach isn’t for the sensitive because it requires a stable working relationship and a great amount of trust regarding proper management.
Sell the business to a third party and divide the profits
- When executed properly, both spouses may profit from selling their business. They can use the proceeds to invest in their own business venture, as well as avoid financial ties to their ex-spouse. However, this may take a long period of time to complete.
Buy-out the other spouse’s share
- If one spouse wants to keep the business for himself/herself, they could pay for the other spouse’s interest. This can be achieved if the buying spouse has enough money or liquidated assets available to buy-out the selling spouse. These assets include equity in a home, IRAs or 401(k) plan assets, and securities outside of qualified plans.
If you decide not to co-own the business with your ex-spouse, then the latter two options require proper valuation of the business. You must determine if the business is a community property or separate property. Community property is when a business began during the marriage with joint funds, while separate property is a business founded before the marriage with money earned prior to the marriage or by inheritance. Then you must hire a professional business appraiser to conduct the evaluation and select the best method based on the type of business and availability of relevant information.
If you are concerned about protecting your business and assets during your divorce, contact our Manchester divorce attorney at Sekella Law, PLLC for critical advice and representation.