Dividing Business Interests in a Divorce
According to a recent federal report, nearly 4 million businesses in the United States are jointly owned and operated by spouses. Even when both spouses aren’t involved in the ownership or operation of the business, a family business is generally considered a marital asset, subject to division when parties divorce.
Experts say that the best way to protect yourself and your business in the event of a separation or divorce is to have a “business prenuptial agreement,” a document that identifies how the business and its assets will be divided in a breakup. Unfortunately, far too few people employ such a document to protect their rights.
A common approach, in the absence of any advance planning, is for one spouse in a divorce to buy out the other party. The principal challenge with this strategy is the determination of a buyout price that is acceptable to both sides. To address this challenge, the parties typically retain a business valuation expert, who will consider all factors—value of assets, prospective market, goodwill—and set a price.
Once a buyout price has been agreed upon, the value is customarily used as an offset against other marital assets. For example, if a business is valued at $1 million and each spouse’s share is $500,000, the spouse receiving the business will have that value of the other spouse’s share offset against the right to share in other marital property, such as real estate or investment portfolios.
Often, there are not enough assets in the remainder of the marital estate to offset the spouse’s share of the business. In such a contingency, the parties may agree to an installment payment plan, or the business may have to be sold, with the proceeds divided accordingly.
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