Navigating a Divorce When You Co-Own a Business

May 7, 2019

In a divorce, a judge unwinds a couple’s financial entanglements. But what happens if you own a business together with your spouse? In addition to being co-owners, you probably both contribute to the business, and it will suffer if either one of you disappears altogether. For this reason, unwinding a couple’s finances when they own a business together presents unique challenges.

 

Decide What to Do with the Business

 

Divorcing couples have options for what happens to the business. For example, you can:

 

  • Sell the business to a new owner.

  • Buy out your spouse’s share of the business.

  • Continue owning and running the business jointly.

  • Close the business down entirely.

 

If the business is profitable, closing it down is probably not the best option. However, you should take a close look at how much money the business makes. Also assess your own desire to continue working in the business. A divorce might be the right time to cut the cord to your business—along with your spouse.

 

How to Sell a Business

 

If you want to sell to a new owner, you need to value how much the business is worth. This might be tricky. Many business owners hire a valuation company, but both spouses should agree on the company hired. Valuation companies charge high fees, and you want each spouse to trust the valuation report issued. What you should avoid is each spouse obtaining their own valuation, which simply creates another disagreement.

 

After valuing the business, you can advertise it for sale. You might also want to jointly hire a lawyer or broker to manage the sale. Again, both spouses should agree on who to hire. Disagreements about whether to sell can actually cause buyers to flee.

 

Buying Out Your Spouse’s Share

 

You will also need to value the business so that you know how much your spouse’s share is worth. If you cannot obtain a loan to buy your spouse’s share, you should discuss giving them marital assets of equivalent value. For example, you might take the business while your spouse receives the home and other assets.

 

Running the Business Jointly

 

This option, though not ideal, is also possible if you can separate your personal issues from business ones. You should clearly define your business roles so that there is no confusion. You should also protect yourself by drafting a buy-sell agreement in the event one ex wants out of the business at some point in the future.

 

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