How to Divide a Jointly Owned Business in Divorce

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This article was republished by Investopedia here

Divorce becomes more complicated when you and your soon-to-be ex-spouse own a business together. Businesses require constant care and attention, and they can’t be easily split in half the way funds in a bank or an investment account can.

Your attorney will likely recommend you don’t keep running the business together after the divorce. This rarely works out, especially if you must be in close contact with each other on a daily basis.

Assuming you follow this recommendation, you can handle the business in a few different ways.

Three Options for Divorcing Business Owners

You and your former partner will need to decide who will assume ownership of the business when the divorce process is over. There are three options:

  1. One of you buys the other out of the business and assumes total ownership.
  2. You both sell the business to a third party. 
  3. You both agree to close the business.

Start With an Accurate Business Appraisal

No matter which option you pick, finding out how much the business is worth is the starting point for negotiation. To do this, you’ll need an appraisal from someone certified in business valuation. You also need to know how much of the value you own and how much of the business is considered marital property.

Consider Buying out Your Ex-Spouse

If you or your spouse wants to keep running the business, you’ll need to decide upon a buyout. In other words, one spouse pays off the other and assumes his or her ownership stake in the business.

Depending on the value of the business, you might not be able to give your ex a lump sum of cash. Instead, you could:

  1. Reach a long-term payout agreement in the form of a property settlement note.
  2. Exchange the business value for other marital assets.

Know That Selling a Business Takes Time

Depending upon your circumstances, selling your business might be the best option. It gives you and your ex a clean break so you can both move on to other things. Selling your business has costs, and many elements of the process are complicated. You’ll likely need a business broker, and it can still take many months, or longer, for a transaction to close. If you’re not prepared for this timeline, it could delay your divorce.

Close a Failing Business

This option is often the last resort, but if the business is failing and has a high burden of debt, divorce is a prime opportunity to close and move on. It’s never easy to close a business that you’ve worked hard to build, but sometimes it’s the best choice.

Final Thoughts

Going through a divorce with a jointly-owned business can add an extra layer of stress and complication to an already challenging process. Plan, know your options, and make the best decision for you.

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Shawn Leamon, MBA, CDFA is author of Divorce and Your Money: The No-Nonsense Guide and host of the Divorce and Your Money Show on iTunes. Learn more at  www.divorceandyourmoney.com
 

Shawn Leamon, MBA, CDFA

Dallas, Texas

Shawn C. H. Leamon is Managing Partner of LaGrande Global, a firm that helps successful families manage large financial transitions like divorce, inheritance and selling a business.

He earned his Bachelor of Arts from Dartmouth College, double majoring in Economics and Philosophy, and his Masters in Business Administration at Spain’s IE Business School.

Before founding LaGrande Global, Shawn helped manage $1.1 billion in client assets at Bernstein Global Wealth Management. He also worked as a credit research analyst at J.P. Morgan. He is a Certified Divorce Financial Analyst, and he has been an advisor to numerous high-stakes divorce cases.

Shawn is the author of two well-received finance books: Managing Private Wealth: Principles, and Divorce and Your Money: The No-Nonsense Guide, both published in 2016.

In his spare time, Shawn is an ultra-endurance athlete and has competed in events as long as 24 hours. He is an Eagle Scout and a member of the Alumni Board of Greenhill School.