Some couples have to divide their businesses during a divorce. This can be a complicated process, so doing your research, and using your knowledge can certainly help the situation. There are three options at your disposal to understand before choosing the best option for your situation. These three options are briefly described below:
1. Buy-Out Your Partner
Buying out the other partner is an option many couples prefer. As an example, you have a marital business worth one million dollars, and the divorce agreement has given your partner 60% of the business. In such a case, you pay your partner $600,000 (60% of $1,000,000) and retain full ownership of the business. Although the buyout option is popular, it can cause potential financial strain on one of the parties. Discover a couple circumstances to consider a buyout:
You Have the Financial Means to Support a Buyout
You must have the finances to buy out your partner. Depending on your agreement, you can pay your partner in a lump sum or periodic payments, or provide them assets of equivalent value. For example, you can exchange marital assets for your partner’s business share.
You Believe in the Business
You shouldn’t buy a business on the decline unless you are confident you will turn it around. Ideally, you should only buy out your partner if the business is strong – and you believe in its’ cause or purpose. Thus, you should have an intimate knowledge of the business which may include a professional audit and valuation. Please note that the court cannot order one partner to buy out the other. You must agree with your spouse on any arrangement.
2. Co-Own the Business
Your business relations with your spouse doesn’t have to end after the divorce. You have the option to continue to run the business together post-divorce and divide the proceeds as per the divorce agreement. Below are some circumstances that make co-ownership attractive.
You Want to Keep the Business in the Family
The best way to keep the business in the family is to co-own it. That way, you can eventually transfer it to your children, or other beneficiary, through the development of a trust or other formal documented process.
The Business Is Your Main Livelihood
You shouldn’t sell your main source of livelihood because of a divorce. For example, if you have a law firm that generates the majority of your marital revenue, your finances are at risk of decline if you sell the business.
The Business Is Difficult to Sell
You may continue to co-own the business if it is difficult to sell. Maybe the economy is in a downturn, or the business has numerous debts. There may be other factors impacting this solution as ideal.
4. Sell the Business
A third option, which is also popular, is to sell the business and divide the proceeds. For example, if the marital agreement has given each of you equal shares of the business, you can sell it and divide the proceeds equally. Below are some of the circumstances under which selling the business makes sense.
Your Divorce Is Acrimonious
Co-ownership will be difficult if you are not on good terms with your partner. In such a case, sell the business and disentangle completely from each other.
You Don’t Want to Run the Business
You should also sell the business if you don’t want to run it. Maybe your partner managed the day-to-day operations of the business, and you have no business experience or interest. You may not have the time affordable to manage the business which impacts your need to sell the business.
You Don’t Have the Financial Means
Selling the business may make sense if you cannot afford any dips in performance that may or may not come with the divorce and change in structure. If you don’t want to co-own the business with your partner, and/or your partner wants a lump sum payment for a buyout, you may need to consider selling.
A divorce attorney can walk you through the above options and their application to your circumstances. DeShon Laraye Pullen PLC has more than enough experience with complex divorce issues. Contact us as soon as possible to help you with business division or any other divorce issue.