Dissolving a marriage is seldom easy, but when the divorcing couple owns a business, divorce will impact the future of the business as well as their personal lives. Whether the business was brought into the marriage by one spouse or acquired during the marriage, up until the date of filing for divorce, it is considered a marital asset that is to be divided. Alternatives for valuing and disposing of this asset can take several forms. These include one spouse buying out the business interests of the other spouse, selling the business to a third party, or continuing to jointly own the business after the divorce.
In any event, because of the divorce, a business valuation will be necessary, and it is wise to engage the services of a reputable business divorce attorney. Here are some key considerations when a personal divorce becomes a “business divorce” as well:
One Spouse Buys Out the Other Spouse
Regardless of how the marital asset of a business is handled during divorce, business valuation is crucial. This will normally be done by an impartial appraiser. To properly determine the business valuation, several primary factors must be considered:
- Tangible property (i.e., physical assets, such as equipment, buildings, in-stock inventory, etc.)
- Intangible property (which can include the reputation and goodwill of the company)
- Financial assets
- Financial liabilities
- Profit and loss as documented in verifiable financial records and statements
With these numbers determined, the business valuation can be set and one spouse can buy the business from the other. Of course, negotiating or coming to terms with the purchase of the business can be extremely complex. How this impacts the divorce and any settlement should also be carefully managed with the guidance of a competent business divorce attorney.
Sell the Business Altogether
Accounting for the factors and details mentioned above, and with the business valuation in hand, divorcing couples often agree to sell the business outright. In that case, typically neither spouse will continue to have any further interest or involvement in the company. (Of course, business purchase terms sometimes stipulate that a former owner will assist in the transition for a certain period, so that would need to be factored in.)
Selling the business outright could impact the distribution of assets in the final divorce decree. In a 50/50 split of the proceeds from the sale of the business, other marital assets might not be impacted. Any other division of the business assets, however, could shift how marital assets are distributed. Other factors that could impact business equity and asset distribution might include how involved each spouse is in the business, the value of individual professional qualifications and contributions, and the earning power of each spouse outside the business.
Remain Co-Owners Moving Forward
Sometimes couples who decide to dissolve their marriage also decide that they can continue to work together and remain co-owners of their business. If the working relationship was productive before the divorce (and remained productive during the divorce process), this could be a good alternative. In many situations, this decision could remove the business as a factor in the distribution of marital assets. However, if the spouses were anything but equal partners in ownership of, and responsibility for, the business, this should be accounted for during divorce proceedings.
Key Takeaways:
What happens when you own a business and get divorced? Any course of action can certainly further complicate an already complex circumstance. Here are some important factors to consider when striving to achieve the best outcome:
- A business is considered a marital asset if it was brought into the marriage by one spouse or formed/acquired during the marriage, up to the date of filing
- During divorce, business valuation is crucial; this will normally be done by an impartial appraiser
- Factors that help determine the business valuation include tangible and intangible assets, financial assets, financial liabilities, and profit and loss
- Selling the business outright could impact distribution of assets in the final divorce decree
- Because of the added complexity when business ownership is entangled in a divorce, it is wise to engage the services of a reputable business divorce attorney from a firm like Dixon & Moseley
At Dixon & Moseley, P.C., our attorneys draw on decades of collective experience handling divorce cases, many of which have involved joint business ownership. To learn more about what happens when you own a business and get divorced – and how to protect your interests – contact us today at 317-972-8000.
This blog post provides general educational material about what happens when you own a business and get divorced. Being an educated legal consumer can help you make the most of the legal experience in meeting your legal objectives. This information is presented by attorneys at Dixon & Moseley, P.C. who practice throughout the State of Indiana. It is not a solicitation, nor is it intended to provide specific legal advice. It is an advertisement. Information contained herein is subject to change.