Dividing a Business in a Divorce

December 22, 2019August 12, 2020
by Angie

When you’re a business owner going through a split, you need to know about dividing a business in a divorce. Do you have to give your spouse half of the company, will you have to sell it, or can you “buy out” your soon-to-be ex?

Dividing a business during a divorce can be a big challenge – and that’s why it’s so important that you work with a Stockton divorce attorney who understands what you’re going through and who can connect you to the experts you need to work with.

Dividing a Business in a Divorce: The Basics

During your divorce, you’ll make a lot of important decisions. You’ll have to think about child custody, spousal support, and how you’ll divide your regular assets and debts – and if you’re a business owner, you’ll have to consider what happens next in that area, as well.

Typically, you have three options:

One of you keeps the business
Both of you keep the business
You sell the business

Before you can start considering any of those options, you have to find out exactly how much your business is worth. A business valuation is an in-depth look at exactly how much the business is worth, and typically, it requires a professional assessment. So many factors can impact the value of a company, including its financial history, projected future revenues and expenses – so in the vast majority of cases, a professional valuation is necessary.

Here’s a closer look at each option you may have if you’re dividing a business in a divorce.

#1. One of you keeps the business

It’s fairly common for one spouse to keep the business. This works when one spouse is willing to “buy out” the other spouse’s interest in the company. The buyout is based on the business’s appraised value, which many people consider the most tax-efficient method of dividing some companies. In many cases, the buyout is considered a transfer of property incident to divorce, so it’s not like an ordinary buyout.

If one spouse doesn’t have the money to buy the other spouse’s interest in the company, the court may allow you to work out an arrangement for payment over time. Your attorney can give you case-specific guidance if this is a route you’re interested in taking.

#2. Both of you keep the business

Sometimes both spouses hold on to their own shares in a business. While it’s straightforward and simple to do this, it might not always be the best solution. For example, when two soon-to-be ex-spouses cannot get along well enough to manage the company effectively, it can do more harm than good. However, if you and your ex can keep things amicable – and effectively work together to keep the business going – it might be an option for you.

Related: Community property in California

#3. You sell the business

In some cases, both spouses decide to sell the entire business. When that happens, they typically split the proceeds. However, it can take time to sell a business – and it can drag out your divorce, too. If you choose to sell your business during your divorce, you’ll have to decide who’s in charge until it sells or if you can work together to manage it.

Unfortunately, there’s no one-size-fits-all approach to dividing a business in a divorce. You and your attorney – and your soon-to-be ex-spouse – will have to work together to figure out which option is right for you. Ultimately, what you decide to do will have an impact on your divorce and on your future after the divorce.

Do You Need Legal Advice on Dividing a Business in a Divorce?

If you and your spouse are splitting up – or if you’re simply considering divorce and would like to learn about what might happen in your case – we may be able to help you. Call us at (209) 546-6870 or get in touch with a Stockton divorce attorney online to schedule a consultation.

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