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How To Split Up A Business After Divorce

According to the American Psychological association, the rate of divorce in the US is about 40-50%. Another separate study by the TIME puts divorce rate at 39%.

When tying the knot, very few anticipate divorcing at any point. However, a lot of things happen in the future that shapes the course of your marriage. Divorce can be unfortunate to separate you from the love of your life.

Sharing family property tends to challenge many people. If you and your partner divorce and have to divide ownership, how do you go about it? Who gets which share of which venture.

During a divorce, the couple should undergo a process of equitable distribution of resources.

Often, sharing of businesses tend to arise conflicts among many divorcees. Splitting up what you took time to build together is probably painful. This article will guide you through the steps that you can follow to reach consensus.

Below are some amicable scenarios to split up the business after a divorce. Read on!

1. Do Business Valuation

Before splitting business, you should conduct a business valuation.  This helps you determine the value under scrutiny. You should settle on a neutral auditor to undertake the exercise.

Please do a complete audit on all family property. If it’s a single business or company under scrutiny, then you can concentrate on that alone.

Valuation should be the first activity to undertake. It enables you and your partner to get figures right and avoid more trouble. Business valuation depends on the following;

  • Property assets or stock
  • Business earning in terms of profits
  • The type of business (partnership, sole proprietorship, LLC, etc.)

Armed with figures, you can move forward with splitting the business. These figures will form the basis of the split.

2. Seek Legal Assistance

An attorney might help you before splitting up the business. Seek a commercial or property attorney and present your figures and facts. The attorney will undergo through your details and come up with appropriate solutions.

Attorneys can help you with issues of tax, ownership transfer, licenses, and permits. Should both of you lack proper legal know-how, then the attorney can be beneficial. This law firm can help with divorce cases to help you ensure a seamless process.

3. Decide Whether to Keep Or Split the Business

You might be divorcing with your partner but not with your business. Both of you can reach a consensus on what action to take on the business. However, it’s always tricky because the partners are still at loggerheads.

Everyone wants to part ways, and the only thing you can do is to split. Splitting is always the best option since the couple has to part ways.

4. Selling the Business to A Third Party

Many divorces opt to sell their businesses rather than splitting them. With details on the business value, you can put it on sale. Although it’s always painful to lose your venture of many years to divorce, circumstances force it.

The best thing to do during a divorce is to sell it out of the venture. It can be a retail outlet, food joint, or the trendiest salon in town, but you can’t own it anymore.

After selling the business, you and your partner should share the proceeds according to the divorce provisions. Taxation applies on profits earned from earnings on the sale of property during divorce.

5. Buying Out Your Partner

Sometimes issues are too complicated that selling the business after divorce might not be an option. In this case, one partner can decide to buy out the other partner. This practice is common in the family-owned business.

If the partners own equal stakes in the business, one partner, mostly the husband, buys out the wife’s stake. The husband then owns 100% stake of the business. In some rare cases, the wife can but out the husband paying him the value his stake.

The partner who buys out the other acquires full business ownership. Transfer of business ownership to the other partner might not be subject to taxation.

6. Joint Ownership

Owning the family business jointly with your partner after a divorce? Sounds funny, but it’s a valid scenario. Many divorcees still share stakes in businesses years after the breakup.

If the ex-partners reach mutual consensus to end the marriage in good faith, they can still run business. Whoever manages the business remits any proceeds to the other partner. This can happen for a lifetime if the divorce wasn’t messy or if the partners still have a great relationship.

Also, partners who divorce badly can co-own the business and share the proceeds well. This happens when they fail to meet consensus or if other solutions fail. Both partners can agree on the sharing of profits instead of closing down.

However, after divorce, jointly owned businesses do not usually go well. They are subject to court battles, mistrust, and bad faith. If there is no other option or if the ex-partners have similar interests in the business, it can still run after divorce.

7. Placing the Business Under Trust

Did you know that partners can put the business under trust for management? A Trust is possible whereby the partners want to keep the business and can’t keep faith in each other. The couple can formalize an agreement to run the business on their behalf after divorce.

The partners can put in place an irrevocable trust and continue being beneficiaries in the business. The provisions of the trust protect the family assets. An Asset Protection Trust can control the business and remit benefits to the partners.

Which Scenario Should You Choose After Divorce

The direction of the business should be determined by agreement between the partners. Not all scenarios will work, and hence there need to be amicable solutions.

If it’s a small business or venture, the partner can sell or initiate buyout. If it was a large business or company, the partners could exercise joint ownership or property trust.

The Bottom Line

If you didn’t thrive in marriage, but the opposite happened in business, you should let your venture vanish in thin air. Remember the story of Jeff Bezos? What if he let go the business after divorce?

The essential thing is not to allow the divorce to control the business. You should dictate the business after divorce to protect yourself and future generations.

For more information, read this post on how to protect your business during a divorce.