When a married couple decides to divorce, the division of assets, including a family business, becomes pivotal. Valuation, ownership and communication are key factors in navigating this complex process.
Ultimately, seeking professional assistance and prioritizing the best interests of the business can help ensure a smoother transition for all parties.
Valuation of the business
Determining the value of the family business is an important step. This often involves hiring a professional appraiser who specializes in business valuation. This person assesses the assets, liabilities, income and market conditions to arrive at a fair value.
Consideration of ownership
About 31.1% of businesses in California are family-owned. In some divorce cases, one spouse may have a larger ownership stake in the business than the other. It is necessary to document the ownership percentages accurately. This will influence how the spouses divide the business or how one spouse compensates the other.
One possible resolution is for one spouse to buy out the other’s interest in the business. This requires careful consideration of the business’s financial health and the means by which one spouse buys the other out. The buyout amount should align with the business’s fair market value.
If both spouses wish to maintain ownership of the business post-divorce, a co-ownership agreement may be feasible. Such an arrangement should outline roles, responsibilities and decision-making processes to ensure the business can continue to function.
In some cases, selling the family business and dividing the proceeds may be the most practical solution. This approach ensures a clean break and allows each spouse to pursue financial goals independently.
Divorce can have tax implications for the family business, such as capital gains taxes or transfer taxes. A tax professional can help you understand the potential tax consequences of your divorce settlement options.
Both spouses should strive to maintain confidentiality about the divorce and its impact on the business. Otherwise, they risk unduly alarming employees, customers and suppliers with the owners’ personal matters.
To safeguard the business’s interests during the divorce process, maintain regular operations and continue generating income. Avoid making any drastic changes that could negatively impact the business’s value.