How Do We Split the Business?

When it comes to splitting or allocating an owned business asset in a divorce, you and your spouse have several options. Each comes with its unique set of advantages and potential pitfalls, so it's important to consider each one carefully.

1. Co-Ownership: One option is to continue co-owning the business even after the divorce. This might be a viable option if both of you have been actively involved in the business and can maintain a professional relationship despite the divorce. For example, if you've both been partners in a restaurant and have a good working relationship, this option can allow the business to continue operating smoothly. However, the key pitfall here is the potential for personal conflicts to spill over into the business, leading to decision-making disputes and operational challenges. It's crucial to have clear, documented agreements on roles, responsibilities, and decision-making processes to mitigate such risks.

2. Buyout: Another common option is for one spouse to buy out the other spouse's share in the business. This can happen if one spouse has been more involved in the business or wishes to keep the business running after the divorce. In this case, the business's value will be determined, and one spouse will pay the other for their share. For example, if you own a retail store together and your spouse has been primarily running it, they might buy your share, leaving you with the funds to invest in a new venture or secure your financial future. The pitfall here could be undervaluation or overvaluation of the business, so a fair, independent business valuation is critical.

3. Selling the Business: If neither spouse wishes to continue running the business or if a buyout isn't feasible, you may choose to sell the business and split the proceeds. This can provide both parties with a clean break and the funds to start anew. For example, if you co-own a manufacturing company but neither of you wants to keep managing it, selling the company to a third party and splitting the profits equitably could be a viable option. A potential pitfall here is that the market conditions might not be favorable at the time of sale, possibly leading to a lower selling price than anticipated.

4. Offset With Other Assets: If one spouse wishes to retain the business but can't afford to buy out the other spouse, they can offset the value with other marital assets. For instance, one spouse could keep the business, while the other gets the house or a larger portion of the retirement funds. However, it's essential to ensure that this exchange is equitable, considering both the current value and potential future value of the assets.

In any of these options, it's vital to seek professional advice. Divorce attorneys, financial advisors, and business valuators can provide valuable insight and help guide you towards the best decision for your situation. Remember, the goal is to reach an agreement that respects both parties' contributions to the business and ensures a fair financial outcome for each of you.

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Things to Consider During Divorce

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How Do We Value the Business In Divorce?