Businessing Magazine Logo Businessing Magazine Logo

Dividing a Business in Divorce: Here’s What You Need to Know

Dividing a Business in Divorce: Here’s What You Need to Know

Couples starting their own business can benefit quite a lot, particularly if both partners have the knowledge and skills for that particular industry. Plus, if you are in this situation and you are running a business together, you have the option of spending more time as a couple. You might not be able to do this if you are both working for separate businesses.

 

Still, while this might seem like a blessing to happy couples, it’s a lot of trouble for those going through a divorce. With both partners getting their income from the same business, how can they address the situation? How can they be business partners when they couldn’t be life partners?

 

Well, the answer to that is to divide that family business. Most likely, it’s going to be messy, particularly if the partners aren’t on good terms anymore. Still, if you hire the right attorney, you might be able to finish the process easier. That being said, there are some things that you might want to know about first.

The Matter of Marital Properties

The first thing that you’ll need to think about is whether the business is considered to be marital property or not. This can differ from state to state, and while a Providence family law attorney may say it is marital property, lawyers from other states may claim otherwise.

 

If the business was yours before you said “I do,” then you might have an easier time to claim the business as your own asset – but only as long as you took the preventive steps to keep it that way. For that to happen, you shouldn’t mix any joint bank accounts or marital property assets. The moment your spouse’s name is there, it’s no longer a separate asset.

 

This may also be resolved if your fiancée wants to sign a prenuptial agreement (or a postnuptial) where they agree that the business should be kept separate.

 

Things can get more complicated as well if you put together the foundations of your business after you marry each other. If your spouse contributed a lot to the business or if any co-mingling of the assets occurred, then things can also get a bit tricky.

Agreements on Valuation

Depending on the type of family business that you own, you might want to think about reaching an agreement on valuation. Think about the kind of business that you two own. Is knowledge its main base? Do you work by yourselves, or have you hired any employees? Is there anything special about your business that makes it valuable to the industry?

 

Depending on the circumstances that you are in, you might want to get a valuation for your business. In fact, most courts will suggest that you get this evaluation, so that both of you can receive the shares that you are entitled to. This way, no one should receive too much or too little. An expert will be called out to research all the aspects of your business and give you a formal valuation.

 

There are three ways in which you can determine the value of the business, namely the following.

The Asset Approach

Here, you subtract the liabilities from the assets, and you get the value. By assets, we mean both the intangible and tangible kind. The tangible will include everything from the infrastructure to the inventory and similar physical assets, whereas the non-tangible kind will be accounts receivables and patents (intellectual property).

The Income Approach

This method makes use of past business information to predict just how much income and profits the company will bring. It is also one of the most common ways to determine the business value. If the business model is not overly complicated, then it should be quite easy to determine the company’s overall value.

The Market Approach

With this method, the business value is determined by comparing it to other similar businesses on the market. It’s pretty much the same way a realtor determines the value of a house by looking at the homes nearby. That being said, this method can be difficult to undergo if no similar businesses have been sold recently.

Common Ways to Divide

When it comes to dividing a business, there are several ways that you can go about it. They may be chosen based on the health of the business, the assets, and also the level of cooperation between the two ex-spouses. Here are the options that you have.

Buy-Out

The buy-out is one of the most common methods – and just like the name suggests, it means that one of the spouses will buy the business assets from another. However, for the process to go smoothly, a valuation needs to be done – after which, the buying spouse can pay the percentage that they own for the shares.

Co-Ownership

If you get along with your ex-spouse well enough to jointly own the business, then you might want to consider co-ownership. All business arrangements are kept intact – and if the situation is not amicable, one spouse can hang onto the interests – this way becoming an absentee owner. That being said, if both spouses are still amicable and in respect with one another, then co-ownership is the best way to keep the business going.

Selling

If no solution can be reached with buy-out or ownership, then you have one more solution in that regard: selling the business completely. It’s one of the most efficient ways to come clean with the division, particularly when you don’t have the cash to buy and want nothing more to do with your soon-to-be ex-spouse. It can take some time until you find a new buyer, but if the business is healthy, you shouldn’t have to wait long. You can use the money you receive to start a new small business.

The Bottom Line

Divorces are tricky, particularly if you also have business assets to divide. This is why you need a good lawyer to help you out through the process. They’ll know the right steps that you should take in order to find out the value of the company and split the proper shares.


short url:
https://bsng.us/bhg

by Dirk DeBie // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.