Think it’s hard to split up your assets when you get divorced? Try splitting up a business.
It’s an incredibly complex situation in which it’s often very hard to find a resolution that makes everyone happy. It’s also very common. The U.S. Census Bureau says that about 3.7 million businesses are owned jointly by married couples.
One of the most common ways for the business to be divided is for one person to buy the other person out. For instance, maybe the business is valued at $1 million. One person gets half in the divorce and then pays $500,000 to the other person for his or her share. This makes that person the sole owner.
That even can be problematic. Does the other person have $500,000 on hand? Just because the business is worth that much doesn’t mean that much free money is just sitting around. If the cash isn’t there, will that person give up other valuable assets, like a home, in exchange for that second share of the company?
Plus, how do couples get an accurate valuation? What if one person thinks it’s worth $1 million based on projections and the other thinks it’s worth $300,000 based on last year’s sales data?
There’s also the question of how ownership is split and how equal the tasks are. Are both people medically-trained dentists who run the practice together, at the same level, or is one spouse a dentist and the other just does the books and runs the front office?
Many businesses fail when couples get divorced. If you want yours to thrive, make sure you know all of your legal options.
Source: CBS News, “Who holds onto the family business when couples divorce?,” S.Z. Berg, accessed Dec. 22, 2017