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How are family businesses divided during divorce?

| Apr 20, 2020 | Divorce |

Divorce brings many challenges for spouses and their families, challenges which often result in personal, emotional and financial consequences.

Unsurprisingly, dividing a family business during a divorce can be one of the most daunting challenges of all.

To that end, the manner in which a family business is ultimately divided, and whether or not the business itself will survive,  is directly shaped the by the willingness of both parties to divide the business asset equitably.

Needless to say, this process can be extremely complicated for high-value family-owned business .

Options for dividing family-run companies

The first step for determining how to divide a family owned business is to get an unbiased appraisal from a reputable third party. Once that figure is known, spouses typically then choose one of these three options:

  1. One spouse keeps the business:This is the most common method among divorcing couples where the spouse who has run the company buys out the other’s interest based on the appraised value.

In cases where the purchasing spouse lacks the capital to buy it outright, a settlement note can be drafted to pay it off over a specified period.

  • Pro: The managing spouse keeps the company while the selling spouse receives a fair cash settlement and is no longer tied to the company and does not maintain a business relationship with their ex-spouse.
  • Con: The purchasing spouse must come up with the cash to buy out the other. While this method is usually tax-efficient, it’s essential to structure the sale to avoid potentially prohibitive capital gains taxes.
  1. Both spouses keep the business:This method is often chosen by couples who both have strong emotional and financial ties to the company.
  • Pro: It’s a straightforward approach that can alleviate some of the complexity that a divorce presents, and some couples can work together amicably despite ending their marriage.
  • Con: Many couples find it too difficult to remain business partners after a divorce.
  1. The business is sold:Another option is for both spouses to sell the company and divide the proceeds of the sale.
  • Pro: For some spouses, it’s a chance to start over and pursue new interests. It’s also a popular choice for some to boost their earnings when they are close to retirement.
  • Con: Selling a business can significantly lengthen the divorce process, meaning some couples must find a way to work together until the sale is complete.

Take a businesslike approach

While divorce creates strong and sometimes overwhelming emotions, focusing on the business considerations for determining the future of a family-run business can help you maintain control over your financial future.

As experienced family law and corporate attorneys, Bashian P.C. can guide you through your options when dividing your family owned business in a divorce.

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