Dividing a Business in Divorce

The economic climate can have a profound impact on how a business is divided in divorce.  A business often represents one of the most valuable assets in a marriage and deciding how to handle it during a divorce is rarely straightforward. This article highlights the several options that spouses can explore to reach an equitable division of their business interests:

Business Buyout

A buyout is oftentimes the preferred option because there is a clean break – the ex-spouses aren’t in business together anymore. A buyout involves one party compensating – “buying out” – the other party’s interest in the business.

Completing a buyout involves valuating a business in order to quantify what the party’s interest in the property is and what that equates to monetarily. However, divorcing spouses should be aware that valuation of a business might be difficult in an uncertain economy and requires hiring an expert to value the business.

Business Sale

The second option divorcing spouses might consider is a sale of the business outright. However, it is understandable that many do not want to sell their business because they have been growing and developing it for several years. There is also something to be said for reputation in a business and the personal value that reputation brings. It can be difficult to carry on a business, or know what it is worth, absent a highly relevant personal presence that would no longer be part of the business if it was sold to another party.

Co-ownership

Co-ownership is another option. While co-ownership can be a necessary stop-gap option, it is fraught with potential complications and future issues. Because of this, it would be wise to see co-ownership as simply a temporary measure to be put into place until an agreeable buyout or sale can be arranged.

When structuring a co-ownership deal it is important to consider that the operator spouse must be compensated – and how that compensation will work alongside any other support orders resulting from the divorce.

There will usually be one spouse managing the entity on behalf of both spouses, and there will usually be an option for one spouse to buy out the other worked into the co-ownership agreement.

In the realm of a co-ownership (and potential eventual buyout) it is very important to know about any creditors to the business and what they are owed. How was the debt secured? For instance – has a lien been put on the business? The operating spouse should also disclose any material facts or opportunities pertaining to the business such as big events, or other material facts important to the business’s continued operation.

Contact Cardwell, Steigerwald Young

There are many things to consider when dividing a business in a divorce. The San Francisco high net worth divorce lawyers at Cardwell Steigerwald Young LLP are available to discuss your own needs and help you devise an appropriate strategy moving forward. Contact our office today to begin working with our team.

Source:

natlawreview.com/article/successfully-dividing-business-assets-marital-divorce-creative-options-valuing-and