What should you do with your shared business when you divorce?

Divorce is complicated. But it becomes even more so when your spouse is also your business partner.

How will your divorce impact the family business? The answer is, “It depends.”

Exploring division options

In New York, any property acquired during the marriage, including a business, is considered marital property and is subject to equitable distribution. That means the company must be divided fairly, but not necessarily equally. Equitable division is based on factors such as the length of the marriage, each spouse’s contributions and economic circumstances.

Before making any decisions, the business should undergo a professional valuation to determine its fair market value. This process considers assets, liabilities, income and future earning potential.

Once the business valuation is complete, both parties can consider the following options:

• One spouse can buy the other’s share of the business by providing compensation equal to the other spouse’s ownership interest.
• The business can be sold to a third party, and the proceeds divided between the spouses
• Both spouses decide to co-own and operate the business. The option requires a high level of cooperation, effective communication and clear boundaries. 

To prevent future disputes and ensure smooth business operations, there could be a formal agreement in place that addresses:

• Each spouse’s role and responsibilities
• How you will make decisions
• Conflict resolution mechanisms

There are several factors to consider when deciding on the business’s future, including:

• The tax implications of selling or transferring business ownership
• Where will the money come from if you choose to buy out your ex-spouse
• Future income and support

Handling a shared business during a divorce involves strategic decision-making and careful consideration of each person’s contribution to the company. It’s crucial to review the advantages and disadvantages of your various options and reach a resolution that protects your financial interests and the business’s future.