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The challenge of dividing a business in divorce

On Behalf of | Feb 22, 2021 | Divorce

After several years together, it is not uncommon for two people to build a strong financial presence. Whether that is through purchasing property, developing collections of priceless assets or running a family business, when divorce becomes a reality, the division of complex properties and debts can be challenging. Dividing the family business often takes center stage in the divorce process.

Determining an equitable split of assets and debts is a significant factor in negotiating child support, child custody and spousal support. The entire financial picture is thoroughly examined. The first step is to arrive at an acceptable value of the business. This is often referred to as “business valuation.” There are numerous methods for determining the value from examining comp sales to calculating the future worth based on the company’s assets and intellectual property. Generally, the divorcing couple will use multiple methods of business valuation and compare the results before deciding on the proper course of action.

While every divorce is different, the couple will generally face three possibilities when dividing their business:

  1. Sell the business outright: Many couples simply choose to sell the organization, split the proceeds and go their separate ways using those profits to fund independent ventures. For many, this is a way to start over fresh for an independent financial future. With an agreed-upon business valuation, it might be easier to find a buyer in the market.
  2. Buying out the other partner: It is not uncommon for one party to have a more vested interest in the company than the other. In these situations, with the business valuation in hand, the one party who wants to continue with the organization can purchase the other party’s stake.
  3. Remaining as co-owners: While this might be a rare option, some couples would rather work together to continue building the organization. Whether this means that daily operations are split so they will not have to work alongside each other, or business operations in total are split the couple can continue building toward the future. Ultimately, they might settle on one of the other two options later but will continue to run the business together in the foreseeable future.

Property division is a complex aspect of any divorce. When various types of assets and debts are entered into the equation, the process can quickly become challenging. When couples are attempting to value and divide a family business, it is wise to seek the guidance of a skilled family law attorney who can provide the answers they need.