OPTIONS FOR DIVIDING A BUSINESS DURING AND AFTER DIVORCE

OPTIONS FOR DIVIDING A BUSINESS DURING AND AFTER DIVORCE

There can be many potential financial conflicts in a divorce. The separation of marital assets, alimony and child support, dividing stock options and retirement benefits are all common areas of dispute. When a divorcing couple jointly runs a business, however, those financial matters can escalate even more quickly, with the business itself at risk. Such a situation is relatively common. The U.S. Census Bureau estimates approximately 3.7 million married couples own a business together. Because half of all married couples eventually split, this potentially tricky situation is quite common.

Preplanning is beneficial

Preplanning before starting a business can prevent many future headaches. Prenuptial agreements, shareholder agreements and buy-sell agreements can anticipate future problems and save time and money in the event of a future divorce or dissolution of the business. With many marriages, however, planning for a potential divorce can be seen as overly cynical, despite its practicality and legal soundness. That is why prenuptial agreements regarding small business ownership remain relatively uncommon.

Options exist in the event of divorce

Fortunately even for business owners who did not anticipate divorce there are several options. Three common resolutions include:

Selling the business and dividing proceeds between the exes
Having one ex buy out the other and running the business alone in the future
Continuing to run the business together after the divorce
Selling the business

The valuation of a small business ownership is paramount in a divorce. Soon-to-be exes may have difficulty separating emotions when estimating a business’ actual value. In addition, one spouse may believe he or she is the “primary” owner of the business. However, even if one spouse played no role in the day-to-day operation of the business, he or she may still be entitled to a portion of the business.

One spouse may also wish to buy out the other. A buy-sell agreement in the business’ articles of incorporation or its bylaws may govern such arrangements. In lieu of any plan, a divorcing couple can agree to the value of a business and which spouse is better equipped to handle the operation of the business moving forward. One spouse may give up business ownership in return for alimony, for example.

Maintaining the business but not the marriage

A rarer option exists, one that has been successful for some exes under certain circumstances. If both exes have a say in the running of the business, the divorce is relatively amicable and each ex is willing to separate personal and business life, then continuing to run the business together may make the most financial sense. This option, while having numerous benefits, also requires hard work and cooperation through a difficult emotional time.

Unique circumstances require unique solutions

There is no “right” way to resolve a couple’s business interests when divorcing. However, there are ways to protect each spouse’s financial interests and keep the business running if that is something one or both spouses desire. Married individuals concerned about how their divorce will impact the running of their business should contact an experienced family law attorney familiar with the issues involved with business ownership and divorce.