What Happens to My Business If I Get Divorced?
Dividing up the marital assets in a divorce can be difficult both logistically and emotionally. When that main asset is a business, the challenges increase drastically. Not only do you have the stress of ending a marriage, but you might also have to deal with dissolving your company. In some respects, the business has to be treated the same way as the house, car or bank account. Meaning, just like the house, someone will need to retain ownership of it after the divorce or it will need to be sold. What makes the business a much more complicated asset is the complexity in determining its value and then how it should be distributed.
Typically, when one spouse is more involved in the business, they will get the opportunity to keep it after the divorce. For obvious reasons, it’s probably not a good idea for the couple to continue operating the business together after the divorce, but there is nothing specifically prohibiting them from doing so. If neither party wants the business or neither spouse can afford to buy out the other, then the business will need to be sold.
The buyout can process can be tricky as well. Ideally, if one spouse is keeping the business, the other spouse will keep the house and other assets to make up the difference in values. But if the business is worth significantly more than the rest of the assets, the spouse will need to come up with the cash to make up the additional amount. If they can’t secure a loan or other financing to pay the other spouse, then the business may need to be sold. As I often discuss, cooperation between the couple here can really pay off. You have much more flexibility when doing the buyout via an agreement versus what the court is able or willing to do if you end up going to trial.
The most time consuming and expensive part of this process is determining how much the business is actually worth. It is not as simple as just looking at the prior year’s tax return. Specialized business appraisers are often needed to determine the business’ value for a divorce. The appraiser will need to review years of financial records like balance sheets, profit and loss statements and bank statements. The appraiser then analyzes the general conditions of the industry and how the business compares to it, and also looks at the business’ current income stream and how that will adjust over time. Only after they have all of that information is the appraiser able to properly assess the value of the company.
With the amount of time and expertise needed for these valuations, the process does not come cheap especially if both spouses obtain their own appraisers. The couple will of course save money if they are able to jointly choose the valuator and then can split the costs (again where cooperation can make a big difference!).
There are also a host of other issues involved like if the spouse owned the business prior to the marriage or if personal expenses are being paid through the business. That’s why if you or your spouse own a business and are considering filing for a divorce, you should always consult with an experienced family law attorney to discuss the specific facts of your case.