When you started your business, you and your spouse figured you would keep it going for years to come. When the two of you were ready to retire, you could pass it on to one or more of your children. Maybe they will even keep it going until they are ready to pass it on to your grandchildren.
At that time, you had no reason to believe this dream wouldn’t come to fruition. However, you then began having troubles in your marriage. Your marital relationship with your spouse finally degraded to the point where divorce was the best option for everyone to have a happy future. Now, you have to decide what to do with your business since your prior dream may no longer be viable.
Your choices for the family business
Like every other asset you own at the time of your divorce, you will need to divide the business as well. What that actually means, in your case, depends on a variety of factors, including whether you and your future former spouse are parting as friends or not. Depending on your circumstances, you have one of the following three options for dividing the family business:
- If you and your spouse are parting amicably, you may be able to preserve your business relationship and continue to run the business together. If you choose this option, you may want to rework your business documents to reflect your new relationship.
- If only one of you wants to continue running the business, that person will need to buy out the other one’s interest in the company. Since this is a transfer incident to a divorce, it will not create a taxable event if done properly.
- If neither of you wants to keep the business, you can sell it, but beware, this could take a long time, which could extend your divorce proceedings unless you make some agreement ahead of time. You and your ex-spouse will split the proceeds from the sale and use your profits as you see fit.
Regardless of which method you choose, you will want to start with a valuation of the business. You can either obtain your own valuation or agree to use one valuation. Knowing what your business is worth could help the two of you decide what you want to do with it.
No matter what you decide, you want to make sure that you protect your interests and your rights. Even if the two of you intend to end your marriage amicably, things could change abruptly, and you don’t want to find yourself at a disadvantage because you failed to prepare for the worst — just in case.