Going through a divorce comes with a wide variety of issues outside of the separations itself. Among the most difficult is the division of assets. In order to satisfy both parties involved, you’ll need the help of experienced counsel for divorce or legal separation. When it comes to a family business, however, there’s a little more involved. Here’s what you need to know.
The Appraisal
Neither party can begin the process until an appraisal is performed. This must be carried out by an unbiased third party who can accurately assess the business’ value. After this first step is completed, confirm the cost with your attorney. From here, there are three options you can take.
Option #1: One Spouse Keeps the Business
This is the most common solution after a divorce with one spouse buying out another. The party that usually runs the business buys it from the party who simple has interest or revenue invested, but the now-owner must proportionately pay their ex-partner based on the appraisal.
You’ll find that this is also the most tax-efficient route. With a direct purchase including any shares counting as a transfer incident to divorce, most states do not consider this a taxable transaction. The trick with this option is having enough cash or liquid assets to purchase your former partner’s interest outright.
Option #2: Joint Ownership
As the most financially sound option, continuing a co-ownership is an excellent choice if both partners can do so peacefully. Individuals often find ways in which they can both retain a large part in the operations without having to work side by side. For most couples, however, this is a difficult if not impossible path. It often leads to fights and damages caused by wrongful termination over those fights.
Option #3: Both Spouses Sell
Choosing to sell the business altogether is an excellent option when neither party wants to forfeit ownership and neither can work in peace together. This allows you and your spouse to pursue other interests, or live as you see fit on your earnings.
The downside to this option is that the process of selling a business is time consuming, lengthening the divorce process and extending legal fees. It also involves a lot of work with your former partner to see the sale through.
Which Option is the Best?
That’s a difficult question, with the answer depending on individual circumstances surrounding the divorce. Each option has its pros and cons that might work for one spouse, both, or neither. If you and your partner cannot discuss these decisions peacefully, then you’ll have to rely on your attorneys to mitigate the process for you.
In the end, its more important to focus on how you feel about the business as opposed to your partner. Would you prefer to keep this idea up and running, or would it be better to cash out and start fresh? Deciding between these two for yourself is the first step to negotiations.
