Equitable division of assets is a major part of the divorce process. It can be difficult for divorcing couples to divide their belongings. Debates over how to divide assets can lead to lengthy and drawn-out divorces. This is especially true when a business needs to be divided, sold, or co-owned. Because asset division is such a contentious process, many divorcing couples find it challenging to agree regarding larger assets like houses, businesses, or items of sentimental value.
3 Options for Handling a Business Property During a Divorce
Before the step can be finalized, each party must decide how they plan to be involved in any shared business enterprise. Couples must also have a conversation about how to divide the business. Before the asset can be divided or assigned to one party or the other, it must be appraised by a neutral third party. After the appraisal, divorcing couples will have three options for how to proceed with their business.
- Option Buyout: One spouse can buy the other out of the business interest by exchanging assets in the same value as the individual’s business interest or for an exchange of liquid assets. The spouse will make this exchange using the appraised value determined during divorce negotiations. Handling the business transfer this way saves money on taxes and is the most tax-efficient means of handling a sale of a business. A direct sale of shares in a company is considered a non-taxable event in most instances when happening during divorce-related property division. If the spouse doesn’t have the liquid assets to cover the buyout price, then an exchange of company stock can be bought back from the departing spouse. This means of buyout could expose the spouse departing the company to capital gains taxes, so it’s important to consult a financial professional to help ensure your best interest are considered.
- Shared Interest: If the relationship between both parties will allow it, the spouses can decide it’s in the company's best interest for the company to continue as it has. In the event of a divorce, it can be difficult for many couples to continue working together. But, if spouses can do so, it’s the path of least resistance from a business standpoint and the position of property division in the divorce. This solution is more realistic for couples who may have started a business together, and they both have a sentimental connection to the company. Parties may be more willing to consider a solution where they both get to be part of the business they created together.
- Sell It: Sometimes, the only solution is to sell the business and divide the proceeds. This solution provides an opportunity for divorcing couples to make a clean break from the marriage and the business. If you don’t already have a seller lined up, this option can take quite some time, preventing the finalization of your divorce. The best-case scenario in this instance is to have put out notices of sale prior to divorce proceedings to find possible buyers who can be vetted while you and your spouse negotiate other terms.
The Importance of Legal Representation
Divorce is hard, and having a family business can complicate the process. There isn’t a single solution that will be right for every situation, so it’s best to work with advisors and develop a strategy that will advance your interests. At Cairns Law Offices, we specialize in no-fault divorces for only $249. If the idea of a low-cost, amicable divorce appeals to you, contact us today to get started! Call us today at (888) 863-9115 to schedule a consultation.