Dividing a Business in a Divorce
Property division in divorce can become fairly complex if one or both of the spouses owns a business. The income generated by a business is usually significant, so there’s often some conflict over who gets the business, or how it will be divided in the divorce settlement. Even if the business belongs to only one spouse, chances are that the business counts as marital property, which is why it’s still subject to a divorce property settlement.
One of the first and most important steps to take is to get a business valuation. Even if your soon-to-be ex tells you that they’ve been earning X amount from the business every year and that the business is worth Y amount, don’t take their word for it. Always keep in mind that they don’t necessarily have your best interests at heart, so you should take basic precautions to protect yourself. This includes getting an independent appraisal, or engaging a joint appraiser with your spouse. Calculating the value of a business isn’t exactly a science, which is why in most cases two different appraisers will assess different values to a business. However, the Institute of Business Appraisers (IBA) and the American Society of Appraisers (ASA) have issued standards for valuing businesses, which means that appraisers tend to follow a similar general procedure. This helps ensure that even if two different appraisers arrive at different values, the two value amounts should be fairly close to each other.
What actually happens to the business?
Here are some common scenarios for businesses after a divorce:
- One spouse buys the other one out. One spouse gets the business, and makes payments over time to the other to compensate financially.
- The spouses separate different facets of the business. Each spouse receives a part of the business to operate how they want. For example, a couple with 2 different branches of a business may choose to divide the business so that each gets one branch office.
- They keep working together. Sometimes couples are able to remain business partners even after a divorce, but this is fairly rare.
No matter the size of the business, it’s always a good idea to engage an attorney who is experienced in complex property issues to help you determine what’ll happen to the business in your divorce.