WE OWN A BUSINESS – HOW DO WE DIVIDE THAT?
Check out this article for more details on Equitable Distribution, or Property Division, and how it may affect you.
Vehicles, houses, bank accounts, etc. may not seem too difficult to separate, but a business is a whole other ball game. What makes it complicated is there is no easy way to establish a value for a business. Details such as cash flow, profits, and owner goodwill all matter, and have to be taken into consideration as we establish a value for the business.
1. The most common way to divide a business in divorce is a Buyout. Buyout simply means one spouse buys the other’s interest in the company. If the buyer has enough available cash to purchase the seller’s half outright, they will usually choose this quick and easy route. However, if he or she does not have the total amount necessary, other assets may be utilized. IRAs, 401Ks, or equity in other property are just three options. You must give careful attention to any tax ramifications though.
Another option would be a Structured Buyout. All this means is that the buyer and seller agree to installment payments over a period of time. A buyout of this type is usually secured by liens or other security instruments to guarantee payment of the total amount due.
2. Another method is Continued Co-Ownership, but this requires two people willing to continue to work together harmoniously. While this sounds like a wonderful option, few individuals find they can work this closely together after a divorce. The first way to co-own a business requires sharing the daily operations. Another option allows one partner to take a more backseat approach while the other runs day-to-day operations. In both instances you would divide the profits in an agreed upon way.
3. Last, you and your spouse could agree to Sell the Business, but most of the time one spouse wants to keep the business instead of selling it. Other issues that may arise with this choice include incorrect timing, or need for a specialized buyer. The economy has more ups and downs than a roller coaster, so selling a business may not be ideal at the time of your divorce. Also, if you co-own a unique business, you may have trouble finding a buyer. If either of these scenarios fits your situation, you may want to consider co-ownership or a buyout.