19 Feb Business Partners and Divorce
Husbands and wives can make excellent business partners. However, in the event of a divorce, remaining business partners could be out of the question. The divorce settlement can become tricky when a couple owns a business together. For married business partners, the best resolution will depend on the nature of the business and the ability to get along, and a poorly handled divorce can lead to bankruptcy for the business. Here are some of the obstacles that may be faced in this delicate situation.
Make an Informed Decision
First and foremost, it is imperative to separate legal, financial, and emotional issues. Deal with the business, finances, and any children or other personal matters individually, and outline the specific needs and desirable outcomes for each area, so they don’t get intermingled.
Evaluate the Financial Worth of the Business
A typical approach to a divorce settlement with a business involved is to let one business partner buy out the other. The key to this solution is to have a good accountant that can help value the business.
The valuation of the business will be critical in determining how much either spouse ends up with. Instead of each spouse getting their own expensive valuation done, which could result in different figures that are arguedover in proceedings, thus dragging things out, agree a third party valuation company that will give you an unbiased number.
In the instance of a buyout or selling the business, the value of the company will need to be determined, which includes how much each spouse owns. A company started after the marriage and with joint funds, under most circumstances, will be considered part of the couple’s “marital estate,” which means it is subject to equitable distribution in the divorce process. Accordingly, should the business be sold, each spouse would be entitled to a share of the marital interest.
A buy-out can be tricky when business partners share critical roles in the company that can’t be easily separated without hurting the company. If one partner buying out another is impossible, another option is a business split. Dividing the business is an option for a situation where each partner has their own clients, patients, etc. and they won’t suffer financially from a split. Running the business together after a divorce is also an option, albeit a risky one.
Keep in mind that if a buyout occurs, the question of how the spouse who sold their part of the company will make money comes into play, and support may need to be paid to them.
Continue to Run the Business
If one or both partners continuing to run the business post-dissolution is out of the question, lawyers may suggest selling the business and splitting the assets. No matter the solution, be prepared for the process of a divorce settlement under these circumstances to be a somewhat time-consuming one.
Make an Objective Decision
The final obstacle is the distraction to the business caused by a divorce. There is also the emotional aspect if one person who was involved with the company is no longer there. Issues like these can cause a business owner to lose focus, and the business can suffer because of it.