Getting a divorce is almost never an easy process, but there are some factors that can significantly complicate these situations. Issues related to the division of marital property can often lead to contentious disputes between spouses.
Both parties may have concerns about whether they will be able to keep items that are important to them and whether they will have the financial resources to meet their ongoing needs. When a family business is involved, this process can become even more complicated.
Family Business and the Impact of Divorce
If you are going through a divorce, and you and/or your spouse own a stake in a family business, it is important to understand the legal issues that may affect you.
Business Assets and Liabilities: Marital or Separate?
The first step in understanding how your divorce will affect a family business is to determine which assets and liabilities are considered to be marital property. In general, if a business was founded while you were married, it will be considered a marital asset, and ownership of the business will need to be addressed during your divorce. If either you or your spouse were a business owner before getting married, the business will usually be considered separate property, and the original owner will most likely be able to retain sole ownership of the company.
However, the status of a business as either marital or separate property is not always obvious. In some cases, a person may have owned a business before getting married, but the business may have increased in value during the marriage due to contributions by both spouses. For example, you and your spouse may have invested marital funds toward expanding a business owned by one spouse, or a business owned by one spouse may have increased in value due to the contributions of the other spouse, such as when a person worked at the business and helped expand its customer base. In these cases, the increase in value of the business may be considered a marital asset. A court may determine that the other spouse has an ownership stake in the business, or the business owner may be required to reimburse the other spouse for the contributions they made toward the business during the couple’s marriage.
It is also important to note that there may be some situations where a business founded during a couple’s marriage will still be considered separate property. Generally, assets that were acquired in exchange for non-marital assets will not be considered marital property. If you or your spouse received an inheritance from a family member and used it to start a business, or if either of you had money saved from before the marriage that was used to invest in a new business venture, the business may be considered separate property rather than marital property.
Determining the Value of a Family Business
Regardless of whether a business is classified as marital property or separate property, it is important to gain an understanding of the value of the business during the divorce process. When you know the current and future value of a business that you co-own with your spouse, you can determine how to divide business assets and other types of marital property. Even if a business is solely owned by one spouse, knowing the value of this asset will ensure that both spouses understand the financial resources that are available to each party, which can inform decisions about property division and other divorce-related issues, such as spousal support or child support.
To ensure that you have a full understanding of the present and future value of a family business, you will need to perform a business valuation during your divorce. This business valuation process typically involves an independent third party conducting a thorough analysis of the business in order to determine its monetary value at the time of your divorce, as well as the projected future value of the business. A financial expert can examine business records, evaluate market trends, assess customer relationships, and consider any other relevant factors that could impact the value of the business. This will ensure that both you and your spouse have a clear understanding of how much the business is worth, the benefits will be available to a person who maintains an ownership stake in the business, and the expenses and liabilities associated with continued business ownership.
Options for Dividing a Family Business
Once the value of the business has been determined, there are several options that you and your spouse may consider as you determine how to divide business assets during your divorce. One option is for one spouse to buy out the other’s interest in the company. This could involve a lump sum payment made by one spouse to the other in exchange for the other spouse’s ownership stake in the business. Alternatively, one spouse may be willing to trade other marital property for their share of the family business, or an ongoing payment plan may be created that will allow for a buyout to be made over time.
If you and your spouse founded a business together and worked together to manage the company during your marriage, neither of you may be willing to walk away from your investment of money, time, and effort. In this situation, it may be possible for the two of you to continue to co-own the business together. If you choose this option, you will need to make sure you both have a full understanding of your rights and responsibilities. By creating a partnership agreement, you can make sure the rights of both parties will be protected, and you can also make arrangements for how you may resolve any business-related disputes that you may encounter in the future. You may also make decisions about whether either of you will be able to buy out the other’s ownership share of the business at a later date.
If continued ownership of your family business by one or both parties will not be possible, you may choose to sell the business during your divorce. By determining the market value of the business and selling it to a new owner for a profit, you may be able to realize a substantial return on your investment, and the amount you receive can be divided between you and your spouse along with other marital assets.
Contact a Marital Asset Division Attorney
A family-owned business can present some unique challenges that must be addressed carefully during divorce proceedings. If you and your spouse own a business together, or if either of you owns and manages a family business, you will need to understand how your divorce will affect your current and future financial situation with regard to this asset. Fortunately, with the help of a divorce lawyer, you can determine how to address these issues, and you can make decisions that will protect your financial interests both now and in the future.