divorcing couple deciding the fate of their divorce

What Can You Do with the Family Business in the Event of a Divorce?

Unfortunately, just because you and your spouse own a thriving business, it doesn’t mean that your marriage is also in great shape. So what happens when the marriage doesn’t last as long as the business does? When you make the decision to divorce your spouse, you must then decide what happens to the shared business. There are three possible scenarios: 1) One spouse sells his or her share of the business to the other; 2) Both spouses sell the business; or 3) Both spouses continue to co-own the business.

1. One spouse sells his or her share of the business to the other

One of the most common ways in which spouses deal with a shared business in the event of a divorce is through a buy-out. In a buy-out, one spouse sells his or her share of the business to the other spouse. The spouse “buying out” the other’s share does so at its fair market value. This generally requires that he or she have the cash or liquid assets to do so unless they elect to finance it. 

It’s important to note that a buy-out is not considered a sale for tax purposes. This is because it is rather a transfer due to the divorce. But in order for it to be considered a transfer incident to divorce the buy-out must occur within one year from the end of the marriage. This is also true if a divorce degree requires the transfer and it then occurs within six months from the end of the marriage.

2. Both spouses sell the business

Sometimes there are other reasons as to why neither spouse wishes to continue to own the business. When both wish to sell, they will split the proceeds. It should be understood that it might take a period of time before the co-owners can find an appropriate buyer for the business. In such a case, the spouses must come to agree as to how the business should be managed in the interim and they must also both agree to accept a buyer’s offer. 

3. Both spouses stay on as co-owners

While certainly not the most common option, sometimes spouses may wish to both stay on as the owners of a business after a divorce. However, this generally requires a very amicable divorce in order for it to work. Doing so also requires that both spouses can put their emotions to the side in order to make decisions that are best for the business. Additionally, it’s best to establish specific business roles in order to prevent conflict. 

Divorce is never easy, and it often becomes even more difficult when a family business is involved. But if both spouses can put aside their differences to establish what is in the best interest of the business, everyone can come out on top. 

The Law Office of Ronald L. Freeman Helps Those in California Who Are Dealing with Family Law Issues

If you or a loved one has questions about any family law issues, such as dealing with a business incident to divorce, the outcome of these issues can have life-long effects on you and your family. That’s why it is so important to consult with a knowledgeable and experienced San Bernardino and Riverside family law attorney who understands related family law issues and can help to walk you through the whole process. At the Law Office of Ronald L. Freeman, our San Bernardino and Riverside family law attorneys will work to collect the proper evidence to help your case. To learn more or to schedule a free consultation, contact us today!