A divorce where one or both spouses own a own business can become much more complicated than one where they are both employed by a company. During a divorce, all businesses are treated as property and are therefore subject to the same laws as other assets. There are a few important things to know about divorces and small business to help you navigate your way through this.
How does divorce impact small business?
When you file for separation or divorce, the business will need to be evaluated. There are a couple important numbers to know for properly evaluating a business. First, the value of the business at the start of marriage will need to be determined. Then the value at the time of separation.
If there is an increase in the value of the business between these two times, the increased amount will be divided between both spouses evenly.
Are all types of business impacted?
From sole proprietorships to partnerships, and even spouses in partnerships all business types are treated as property and need to be evaluated as part of the divorce process.
How will a business be evaluated?
There are two main approaches to evaluating a business to determine its value. The first way is to evaluate it based on its liquidation value. This approach is determined by adding up all of the company’s assets and subtracting its liabilities, or debts.
The second approach uses the business’ potential for future income earning, or what a buyer would pay today to buy the business if it were for sale. This is sometimes called the Going Concern Value.
What if you own the business with your spouse?
Many people may think that you will have to sell the business you own with your spouse if your marriage doesn’t work out, but that isn’t the case.
There are a few factors that will help determine the best course of action. For example, did one spouse own the business before the marriage or was the business founded by both spouses after they were married? The answer to this can play a key role in the outcome.
There are three options for spouses who own the business together and are separating
These options are only applicable if the business is jointly owned by both spouses – whether founded together or one souse was brought on after marriage as joint owner.
Can you force your spouse to sell the business to you?
If one spouse wants to buy the other out of the business, the other spouse may hold out for a higher payout value or additional assets (like a house) because they know their spouse wants the business.
In these cases, equitable distribution may be the only option. One spouse may keep the business, but the other spouse must receive a fair amount in other assets to make up for their share of the business.
Contact Marcy Segal today
Going through a divorce is complicated, and when you own a business, it can be even more so. For help navigating this and other issues surrounding divorce, call us today to speak to a family lawyer.