Divorce: Dividing Business Assets

Dividing Business Assets in Divorce. Small Business has always been the cornerstone of America so it is not surprising that a common concern in many divorces is how businesses assets are divided. In general, there are three ways business assets are divided.

1. Business is Awarded to the More Active Spouse – The most common way to divide the assets of the business is for the spouse who participated the most in the business to receive all the business assets and the other spouse is compensated in other ways, whether through a cash settlement or through and larger portion of other community assets.
2. Business is Sold – Divorcing spouses often cannot agree on who gets the business or the value and a judge doesn’t see a clear way to go, so the business is forced to be sold and the proceeds are divided among the spouses.  This is usually a last resort for the court but often the spouses will agree to this scenario. Perhaps both spouses just want out and a clean start.
3. Spouses Continue to Operate the Business Jointly –  This is the least common of the three scenarios however it does happen.  The spouses split as friends and colleagues and business continues as usual.  Normally, this is arranged by agreement. Courts are aware of the animosities of divorce and are very reluctant to force the spouses into that type of situation.

Common Issues that Arise in Dividing Business Assets

In dividing the business assets there are several common issues that arise.   Each of those issues can lend to the complexity of the matter which itself lends to the costs.

Business Valuation

With many businesses, determining a value can be a daunting task and often very expensive.  Both sides may want their own experts who often arrive at two very different valuations.  Just simply looking at the books is seldom sufficient.  Assets that have been depreciated for accounting purposes may be worth more or less if actually sold.

Beyond the physical assets of the company, companies have future value.  How much money is the company estimated to produce over the course of the next year, five years, 20 years?  And to make matters even more complicated there is the intangible factor of  the goodwill of the company. What is the company worth beyond its assets.

Abandonment or Neglect

In most small business the survival of the business depends on the owner or owners.  If a spouse or both spouses abandon or neglect the business during the divorce the business may be worthless.  The neglect my be intentional or just a product of the strain of the divorce.   Sometimes a spouse may even tank the company for spite or with the idea of starting over after the divorce.   Other times the divorce proceedings have distracted the spouses from the business and the business is nearing default

Cash Flow

Even if a buyout is the best way, many small business owners don’t have the available capital or marital assets to buy the other spouse out.   Sometimes a  note and payment plan can be arranged but that can be risky for the creditor spouse.

If you have any questions regarding dividing the business assets in a divorce or just a general question about the divorce process, contact us at (832) 844-0304.