Dividing Your Family Business During Divorce

family business

A family business is also considered an asset, and that business will need to be divided up somehow as well. In order to figure out the division of the business, it must first be formally appraised and evaluated.

Both spouses will need to clearly state how they want the business divided and/or if they want to continue to be involved in the business after the divorce.

Then, there are three different options for dividing your family business following the divorce.

The Business Is Owned By One Spouse

The first option is for only one spouse to keep one hundred percent of the business. For this to happen, the spouse who will continue to own the business will need to buyout the other spouse. The buyout cost depends on the business’s appraised value. If the spouse that is keeping the company does not have enough assets to buyout the other spouse, a payment plan can be created. Also, if both spouses own shares in the company, those shares can be bought out by the company. 

Believe it or not, this is actually the most common result in divorces involving a family business. One reason is because it is the cheapest option tax wise, because the transfer of property due to divorce is not taxable by the Federal government.

Often times, this will work out to be a good deal for the spouse who is not as involved in the company as the other spouse, as they can walk away with cash that is not taxable. 

Both Spouse’s Own The Business

The next option is for both spouses to keep the business. It’s certainly the most simple option, but it can still be very difficult for both spouses to work together amicably when running the business. However, it is an option for spouses who both have strong emotional ties to the business and cannot find a solution where one of them walks away. If the divorce is not amicable, this probably wouldn’t be the best option and would result in problems in the future.

Both Spouse’s Sell The Business

The other option, of course, is for both spouses to sell the business. This is assuming that neither spouse would like to keep the business. The main benefit to this option is it allows both spouses to begin their lives fresh and new once the divorce is finalized. The biggest con is that it dramatically increases the divorce settlement time frame, and both spouses may have to work together to get the business sold. 

closed family business

Related: How Do You Divorce Your Joint Bank Accounts?

Conclusion

Meeting with your lawyer or team of advisors is the best way to find out which of these options is best for dividing your family business. These professionals can outline which solution makes the most sense economically. Alternatively, you and your soon to be ex-spouse may both already agree which course of action is the best. If you can agree, your divorce proceedings are going to be a lot less complicated. 

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