If you and your spouse own a small business, your divorce is more complicated than most. For many spouses who have put significant work into building their family business over the years, buying out their spouse lets them split from their partner while still retaining their business. But while this sounds easy, you'll need to answer some important questions first. Here are a few to consider.
1. How Will You Value the Business?
Figuring out the value of the business can be tricky. It may be done using a variety of methods. One business might see most of its value tied up in hard assets like real estate or heavy equipment. But a dental practice's value is in the branding and client list. Then, a restaurant's value is tied to its location and income stream. Both spouses will need to agree on not only the end value but how that value is determined.
2. How Do Taxes Affect Parties' Value?
If one spouse plans to buy out the other, long-term tax issues will need addressing. For instance, if the spouse who bought out the other after divorce (with no tax consequences) later sells the business, they will pay taxes that could reduce the overall value of their portion of the settlement. An alternate value may need to be assigned for any buyouts.
3. Can One Party Buy Out the Other?
How will one spouse find the money to buy out their ex-partner? Unless the buyer has a lot of cash set aside, they may need to get a commercial business loan, a mortgage, or make installment payments. Alternatively, the receiving spouse may agree to take a portion of the profits for a set number of years with a balloon payment at the end.
4. Can One Person Be Compensated Elsewhere?
If no one spouse has the financial means to pay upfront for the business, they may consider altering the divorce agreement to include compensation elsewhere. For instance, if you want to keep a $500,000 business, you might give your ex-spouse the $500,000 home and call it even. This can work well if you're willing to sacrifice other assets for the business or if these other assets are easier to sell than the business.
Where to Start
Clearly, anyone planning to buy out a spouse or be bought out needs to consider the many ramifications of this transaction. The best place to begin this prep work is by consulting with a divorce lawyer. As you learn more about this process, you'll be in a better position to ensure a brighter financial future after your divorce. Contact a divorce lawyer for more information.
Hello. My name is Stephanie Laurel. I have recently been through a divorce, and although I don’t wish it on anyone, I do wish that everyone could come out of the proceedings feeling they have been taken care of. My husband and I had been married twenty-eight years. We have four children, two of which are still under eighteen years of age. We owned the home we lived in and had a vacation home in a different state. We are civilized people, we get along fairly well considering, but no matter how much we thought we could go through the divorce process without lawyers, it wasn't possible. We each hired a divorce attorney to represent us. Most of the negotiations went well, but when we hit a rough spot the attorneys took over. Thank goodness. I’m going to share more about the experience and hope it helps you.