Business holdings can be worth tens or hundreds of thousands of dollars or more. They are also frequently the primary source of income for the people who own and operate the company.
Whether the business is a local retail establishment or a successful professional practice, it may be vulnerable during divorce proceedings. Equitable property division rules require that spouses clearly divide any resources acquired, maintained or improved with marital income.
Those who started a business during a marriage or who developed the company while married may have to negotiate regarding the business as part of the property division process. How do business owners effectively address the company during a divorce?
Determining what is divisible
In some cases, the entirety of the company could be part of the marital estate. Other times, only a portion of the company’s value and resources is marital property. A thorough review of the financial records for the company and any marital agreement between the spouses can help clarify which assets are potentially subject to division and which are potentially separate property.
Setting a realistic value
The fair market value of the company is one of the most important financial figures in a business owner’s divorce. The spouses need to agree on what the company is worth if they intend to divide the marital portion of business equity in a reasonable manner. Choosing the right valuation method and properly applying that method to the business can be challenging for those already overwhelmed by the demands of divorce proceedings.
Arranging for funding
In many cases, a buyout may be necessary, especially if both spouses are technically partial owners of the company. The spouse retaining the business may need to secure a loan or obtain alternate sources of funding, possibly by liquidating personal resources, to buy out their spouse during the divorce.
In some cases, that process may require adjusting the company’s form to change it from a partnership to a sole proprietorship or a limited liability company (LLC). There may be various types of paperwork required, as well as tax implications when liquidating assets.
Having assistance while addressing complex resources can make a major difference for successful business owners facing divorce. It is often possible to address the company fairly while retaining control of the business and preserving as much of its value as possible when a business owner divorces.