Things get divided during a divorce. But a jointly-owned business can complicate matters. Why? Because property and assets can fall into two categories:
- Marital Property
- Separate Property
You can see how a jointly-owned business could fall into both categories. However, some of your assets will be easier to divide than others. The contents of a savings account could be easily divided, but what if you have one car? One house?
The way you would approach the car or the house is similar to how a jointly-owned business would be handled during a divorce. The biggest difference here is that neither of you is likely depending on the car for your future income. Here are some options for you to consider.
Buying Out The Other
This is when you purchase your spouse’s ownership—or they purchase yours.
- How much is the company worth?
- What percentage of it does your spouse own?
But several other factors go into this. This is a transfer of ownership due to a divorce. You may not have to pay taxes on the purchase. If so, that does simplify the process.
If the transaction does result in taxes, then this will impact the amount of the buyout.
A buyout could also involve a significant amount of money. If a third-party valuation says your business is worth $2 million, how would you buy out your spouse’s 50% ownership? Your money is tied up in the business.
You still have the option of borrowing the money. Or you could potentially trade assets of equal value. One person keeps the house, the other keeps the business. Structured payment plans can also be considered.
Two Other Options
Another consideration is to sell the business. A third-party valuation determines what the business is worth, and then you sell it for that amount. The proceeds get split based on ownership.
But there are potential complications here too. What if no one is willing to pay you what the third-party determined the worth to be? If you and your spouse are equal partners, then you will have to choose. Do you take a loss? There could also be outside factors that prevent you from selling—an economic recession, for instance.
Or you and your spouse could keep being business partners. As difficult as it may be to do this, it is possible. One of you could run the business while the other becomes “a silent partner.” A percentage of the profits would go to the spouse who is not running the business.
Fraser, Wilson, & Bryan, P.C.
At Fraser, Wilson, & Bryan, P.C., we are passionate about helping people work through some of the most difficult times in their lives. If you are about to enter into the divorce process and share a business with your spouse, schedule a free consultation with us. We have experience with both family and business law. We can also be reached at (254) 965-7270.
