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What will happen to your business in your divorce?

| Dec 28, 2020 | Division of Property

If you own a business, you have likely spent countless hours building it, growing it and managing it. During this process, your spouse likely played a role, whether as an active co-owner or by providing you with encouragement and support. Yet, you two may now be divorcing, and they may be entitled to a share of your business as part of their settlement. If they are, the arrangement they receive it in will depend on their role in the business, your relationship and your finances.

Sharing ownership of your business

It may make sense for you and your spouse to share ownership of your business if you are going through an amicable divorce. While it is rare for divorced couples to opt for this arrangement, it may make sense if you two can still work well together. You will want to draft a clear agreement, though, if you take this route, to ensure you separate your business relationship from your personal relationship.

Buying out your spouse’s share of your business

When most business owners get divorced, they buy out their spouse’s share. The advantage of this arrangement is that it will allow you to retain ownership of your business. Yet, reaching a fair buyout value can be tricky. For one, you will need to account for all your business’ financial variables. Furthermore, you will need to consider the potential tax consequences of the transaction. Buying out your spouse’s share of your business may also hinge on whether you have the assets to do so. If you do not have the funds available, you may want to offer your spouse marital property of equal value in exchange. Otherwise, you may be able to take a loan out to purchase their share of your business.

Selling your business

It is possible that you may not have the ability to purchase your spouse’s share of your business. Or, if you two are going through an acrimonious divorce, you may be unable to reach consensus on a fair buyout value. In these cases, you may want to sell your business and divide the proceeds. Keep in mind, though, that proceeding with this course of action may depend on:

  • Whether you have an interested buyer for your business
  • Whether your business is currently profitable
  • The difference between your business’ value and the buyer’s offer
  • The tax consequences of selling your business

While owning a business is often rewarding, it could add complexity to your divorce. Yet, with the guidance of a family law attorney, you can work out an arrangement that makes sense for your and your business’ needs.