How Are Jointly-Owned Businesses Split in Divorce?

Navigating Divorce and Joint Business Ownership

Divorce will impact every part of your life. Several issues can make divorce even more complicated, such as child custody. Another major issue to consider is when divorcing partners co-own a business. It’s not uncommon in the United States, as 10% of businesses are owned by couples.

For small business owners, one of the most challenging aspects is understanding how jointly-owned businesses are split in a divorce. The family law attorneys at The Law Offices of Diron Rutty, LLC will break down this complex issue to prepare you to handle the division of your business assets.

Valuing Jointly-Owned Businesses

Before you can divide a business, you need to know its worth. You can’t divide it arbitrarily unless you want there to be a legal issue later in life.

But determining the value of a jointly-owned business in a divorce isn’t simple either. It requires a meticulous approach as well as many different financial statements. These provide a snapshot of the business’s financial health. These documents include:

• Income statements
• Balance sheets
• Cash flow statements

Each of these plays a pivotal role in painting a complete picture of the business’s value.

How to Value Your Business

There are professional valuation services that can provide a trustworthy assessment. These professionals use various methods to evaluate a business, including market capitalization, times revenue, and earnings multipliers. Their experience ensures that the valuation is accurate and reflects the business’s true worth of your business. This valuation is essential for a fair divorce settlement.

Additionally, understanding the business’s intangible assets, such as reputation and client base, is crucial to its evaluation. These elements can significantly affect the overall value of the business and should not be overlooked during the valuation process.

Division Options

Once the business’s value is determined, the next step is deciding how to divide it. Several options can be considered, depending on the unique circumstances of the divorcing couple.

1. Selling the Business

One option is to sell the business and split the proceeds. This approach provides a clean break for both spouses, allowing them to sever financial ties and move forward with their lives. However, selling a business can be a lengthy process, requiring time to find a suitable buyer and negotiate a fair price.

It’s important to note that in your divorce, you two can agree to sell the business and split the proceeds. This way, if your business isn’t immediately sold, you can still finalize your divorce. You may need temporary rules for how to run your business until it’s finished.

2. Buyouts

Another option is a buyout, where one spouse buys the other’s share of the business. This allows the business to continue operating under one owner while providing the other spouse with compensation.

Buyouts can be complex, often requiring financing arrangements or structured payments over time to make the transaction feasible. It’s also only possible if one partner can afford to buy out the other.

3. Asset Swapping

Asset swapping is a creative solution where one spouse trades their interest in the business for another asset, such as a marital home or a vacation property.

This approach can be beneficial if one spouse is more interested in retaining the business, while the other values other assets more. Property settlement agreements or prenuptial/postnuptial agreements can facilitate this type of division.

4. Joint Ownership Continuation

One approach is to maintain joint ownership of the business while establishing a clear operational framework. This allows both parties to benefit from the enterprise’s profits without necessitating a sale or immediate division.

However, this option requires a solid partnership agreement that outlines each party’s roles, decision-making authority, and profit-sharing arrangements. Such parameters are essential to prevent future conflicts and ensure a smooth operational transition.

5. Deferred Distribution

Deferred distribution allows spouses to keep their current ownership structure while agreeing to revisit the division of assets at a specified future date.

This method can be particularly advantageous when the business is experiencing growth or when market conditions are uncertain.

Legal Implications

Dividing a jointly-owned business involves navigating various legal implications. Prenuptial and postnuptial agreements can play a significant role in this process. These agreements outline how assets, including businesses, will be divided in the event of a divorce, providing a clear roadmap and minimizing disputes.

Understanding the legal processes involved in dividing business assets is crucial. Consulting with a family law attorney with experience in the asset division of businesses can provide invaluable guidance and ensure that all legal considerations are addressed.

Contact the Family Law Attorneys at The Law Offices of Diron Rutty, LLC

Dividing a jointly-owned business in a divorce is a complex process that requires careful consideration and professional guidance. By understanding the valuation methods, exploring the various division options, and navigating the legal implications with the help of an experienced attorney, you can ensure a fair and equitable settlement.

At The Law Offices of Diron Rutty, LLC, we pride ourselves on providing high-quality representation tailored to the unique needs of each client. If you are facing a divorce and need assistance with business asset division, contact us today to schedule a consultation. Our team is here to help you through this challenging time and ensure your interests are protected.