By Chris Kramer
How to divide the family business can be a complicated issues once a couple decides to divorce. Usually, a family business is an asset the couple will address on how to divide in a prenuptial agreement before marriage. If the couple starts up a family business during the marriage, they may be legally advised to determine how a family business will be divided in case of divorce in a postnuptial agreement.
However, if the couple doesn't arrange how property distribution should be handled in a marital agreement before divorce, division of a family business will be left up to the divorce court. Depending on divorce laws in your state, the divorce court will typically assign the family business to the spouse who runs the company. In exchange for the business, the other spouse may be given other assets, such as the family home to make property division fair or equal, depending on state property division laws.
If both spouses are actively involved in the business, the divorce court may offer each spouse the option of buying out the other. Typically, one spouse will have a certain time period to buy out the other spouse. If he or she chooses not to buy out, the other spouse will have the same opportunity.
The divorce court may have to sell the family business if neither spouse is able to afford buying out the other half of the company; however, the divorce court typically favors giving the business to one spouse over dissolving a company.
It may be possible for the family business to continue if the divorce court feels the husband and wife can work together as business partners after divorce. Although this is a rare occurrence, if the option is a possibility, the couple needs to come up with an exit strategy, in case the venture doesn't work out in the long run. Both spouses need to agree, preferably in a written agreement, on the rights each person has if the partnership needs to be ended later.
Determining the value of a business and how much of it is considered marital property can be difficult. Usually it is the price a willing seller and buyer with knowledge about all the relevant facts can agree on. The value of a family business includes cash distributions, various non-cash benefits and cash from the future sale of the business.
Typically, the divorce court uses financial statements, tax returns and checking account records to help determine the value to assign a business because these documents show assets, liabilities, income and expenses. Loan applications of the owner or the business may provide valuable information too.
A local divorce attorney can help you determine what financial statements should be used when the divorce court is assigning value during property distribution. Find out if you should hire professional accountants and business consultants to help evaluate a business with help from a divorce lawyer.
During the divorce process, business owners may say the divorce has caused the business a critical disadvantage that has made the family business suffer. A spouse may argue the business should be valued at more or less to gain more during property division.
If the family business was established before the marriage, the divorce court will have to determine what portion of the assigned value should be considered marital property and how much should be separate property. The divorce court usually determines the value of the business in present day and subtracts the value of the business at some point before the marriage. There may be adjustments for additions and withdrawals of principals throughout the years.
A local divorce lawyer can help you through the property division process of divorce. Find out about asset protection and the steps you need to take to protect your stake in a family business. Get in touch with a divorce attorney near you by calling 877-349-1310 or filling out a divorce case review form. Make sure your business is assigned a fair value and you get a reasonable portion by working with a divorce lawyer today.