Dividing marital property is never easy in divorce, but some types of property create more challenges than others. Near the top of the list are businesses. When a family business is part of the marital property, the spouses must go through some complicated negotiations and tough choices.
Is the business part of the marital property?
The first step of the process is to determine whether the business must be counted as part of the marital property. The answer isn’t always obvious.
Generally, anything one spouse owned before the marriage will remain their separate property in divorce, and therefore is not part of the marital property. Separate property does not have to be divided in divorce.
However, it’s common for spouses to commingle their property during marriage over the years. For instance, both spouses might contribute to buying new equipment for the business, or to bringing in new customers. Indeed, both spouses might work for the business and represent themselves to the public as co-owners. In such cases, a court might find that both spouses had property interests in the business and it should be considered part of the marital property.
What will you do with the business?
If you have found that your business is part of the marital property, your next step is determining what percentage belongs to each of you. It may be a 50/50 division or something much more lopsided.
Armed with that information, you have a big decision to make: What do you want to do with the business?
Generally, you have three choices: You can keep running the business as co-owners with your ex; you can sell the business; or one of you can buy out the other’s share in the business.
If, like most people in this situation. you decide on the buyout option, you have some more work cut out for you: In order to settle on a buyout price, you must determine the value of the business.
The best way to do this is by hiring valuation professionals. Ideally, both spouses should hire their own valuation professionals.
Typically, experts assess the value of a business by examining its assets and liabilities and its income. They may also compare it to similar businesses in the area.
Once they have come up with a dollar figure for the total value of the business, the spouses can arrive at a price for buying out a share based on the percentages of ownership involved.
In many cases, this isn’t as easy as writing a check. The dollar amounts involved may be too high for the parties to pay by themselves — particularly as they’re dealing with the other financial effects of their divorce. With that in mind, the spouse who wishes to keep the business may need to secure financing in order to pay for the buyout.
As you can see, all of this can be quite complex. It’s important for anyone going through this — whether they are a majority or minority owner — to learn about their rights and legal options.