Running a business with your spouse or as a family may seem ideal when your relationship is healthy. But, when the relationship breaks down, sharing ownership of and responsibility for a business can be a minefield of emotional, professional, and financial pitfalls.
A divorcing couple who shares a business will have two separate decisions to make: how to keep the business running profitably while the divorce is underway, and how to maintain or dispose of the business post-divorce.
Your best chance of preserving the value of the business and securing your financial stability is to assess the situation objectively and attempt to make the same rational, unemotional type of decisions you would in any other aspect of the business.
Options for a Co-Owned Business in Divorce
In terms of longer-term resolution of the business, the couple must first decide whether they want to continue co-owning the business.
Some divorced couples do continue to successfully share business interests and even work together. But, it’s not for everyone, and requires hard, realistic consideration.
Whether legal changes will be required to do so depends on the type of business entity and how the couple holds the business and/or its assets. And, allocation of interest in the business will have to be considered not just in isolation, but also in the context of the division of assets in the divorce case.
If the couple chooses not to—or is unable to—continue sharing the business, then one or both parties will have to transfer his or her interest in the business.
Allocation of the Business in a Property Settlement
It’s possible that the business will be awarded to one party or the other in the divorce case, or that the couple will reach a resolution that allocates the business to one spouse and balances that out by giving the other a disproportionate share of other assets. Depending on the type of business entity involved and how the business is held, this may or may not require a transfer of interests or even dissolution of a partnership.
Sale of One of Both Parties’ Interests in the Business
One party may, perhaps as a part of the divorce settlement agreement, buy out the other’s interest in the business. However, that’s not the only sale option available.
Other possibilities include one party selling his or her interest to a third party and an outright sale of the business.
Where a third party sale is in play, the parties will typically have to agree on a valuation or present evidence that allows the divorce court to determine fair market value for the sale. If the parties are unable to agree, or simply lack the requisite expertise to agree on the fair value, one or more experts may be necessary to assess the value of the business.
Work with a Law Firm that Understands Divorce and Business
Not every divorce lawyer has the knowledge and experience necessary to manage the disposition of a shared business in a divorce case. If you are divorcing or considering divorce and share a business with your spouse, it is to your advantage to work with a law firm that has the knowledge base and resources to manage all aspects of your case.
In Northeast Ohio, Dworken & Bernstein Co., L.P.A is that law firm
The information presented in this post is not legal advice and does not form a lawyer/client relationship. Laws and circumstances can differ and change.
Please contact us for a personal review of your situation