Options for Divorcing Business Owners

When couples get a divorce many issues need solved. A divorce for business owners increases the complications of the matter. A business not only provides income, it also gets viewed as property. This property, like all others, can be divided between the spouses. However, there are ways to work these issues out.

Co-Ownership

This method simplifies the matter. If spouses maintain the ability, they continue owning the business together. This option provides simplification, but is difficult in practice. The spouses must maintain a working business relationship for this method to succeed. If trust becomes an issue, or emotions run rampant, which they do in divorces at times, this method will fail.

Sell and Split the Profits

This option also seems simple, yet has complications. This agreement sells a business to a third-party and the divorced couple split the profits. However, if one member doesn’t want to sell, this isn’t an option. Even if both parties agree to sell, it might take months to sell the business. If the couple wants a clean split, with no attachments, this may cause issues.

Buy-Out

The last option allows one member to buy the half from the other. This often works best when one spouse has no interest in maintaining the business while the other wishes to keep the business going. This option is available if the buyer has the resources to buy out the spouse. There are also options to use other assets like other property to offset the price of the buy-out.

Requirements to Consider

All three of these options have requirements. First, the business needs to be defined as a community property or separate property. A separate property gets started before the marriage, while community gets started during the marriage. This sounds like an easy definition, but gets complicated when it comes to valuation of the business. A separate property often has community aspects. A spouse that spends time, or invests money in growing the business has an interest. It takes experienced attorneys to define the property type.

The business value needs to be obtained as well. This is done by a professional appraiser familiar with the business type and valuation methods. They usually use three methods. The market approach bases value on similar businesses sold. The income approach looks at the cash flow history and models expected income or profits. The final method focuses on assets and liabilities of the business, called the asset approach.

Goodwill also plays a role. In Texas, goodwill gets split into personal goodwill and enterprise goodwill during a divorce. Personal goodwill involves the person running the business, and their reputation. Enterprise goodwill involves the name and reputation of the business. This gets treated like property. Enterprise goodwill is subjected to division in a divorce, while personal goodwill is not. This consideration gets overlooked at times but has importance.

The Collaborative Divorce Process

This process gives the spouses an environment to discuss these options, without going into litigation. The meetings take place without a court, which has many benefits. Instead of focusing on getting the biggest piece of the pie, the focus is on the individual and mutual goals of the couple. It also provides a method to avoid long court battles and destroying relationships within the family. The couple works with individual lawyers to arrive at an agreement customized to benefit all parties. Many recommend this option instead of taking issues to court.

A divorce has the potential to devastate individuals for a number of reasons. Divorcing business owners face extra challenges. They also face the possible end of a business built before or during the relationship. But there are options and help available. Contact us today if you are facing this situation. Let us help you get through this difficult time with the best possible outcome.

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