What happens to a business in a divorce

Upon the dissolution of marriage, marital assets are divided in a fair and equitable manner. Like it or not, a business qualifies as a marital asset unless it fits into one of the following categories:

• It was acquired or started before the marriage
• It was inherited or gifted
• It is designated as separate by a valid prenuptial or postnuptial agreement

It is nevertheless important to note that if individual assets are commingled with marital ones, the picture can change and the above rules are not so concrete.

Determining the value of the business

The most complicated process in dividing marital assets will likely be determining the value of a business and then dividing it. Whether it is a partnership, sole proprietorship, C-corporation or S-corporation, its’ structure needs to be considered to determine ownership, how it is to be divided and tax obligations. An expert business appraiser, certified public accountant or attorney with a business background can help determine value.

What are the options?

Once value is determined, the two sides can discuss what to do with the business:

• Sell it: Some couples will choose to sell it and then split the payment at agreed upon percentages.
• Buy the other out: Perhaps the woman was hands-on and wants to keep the business. After the valuation, this can be part of the settlement. The new owner can potentially arrange to make payments over a designated period.
• Close the business: Sometimes it is best to close the business and take the loss, but this must be done in accordance of all applicable business and tax laws.
• Remain partners: Perhaps the couple had a great working relationship and wish to keep the business going. As a rule, this is not recommended, but some make it work.

Some family law attorneys have a background in business

Business owners and their spouses who file for divorce are usually best served when working with a family law attorney with a background in business and finance. All family law attorneys can divide assets, but inexperience with the nuances and complexity of businesses can slow the process or even lead to oversights.