Even if a divorce is the best solution for your future, you will still likely face several complex negotiations. Discussions involving your children, property division and support issues can lead to heated debates and multi-tiered negotiations. When your property division includes a family business, however, it becomes yet another factor in a challenging process.
In general, there are two elements to consider when dividing a private business during the divorce process. First, the business must be properly valued as an organization. Second, the divorcing couple must decide which method they want to pursue when dividing the business. Once these two conditions are satisfied, the couple can proceed with the split.
Business valuation
There are numerous methods that can be used to accomplish this, and many couples will select two or more methods and compare results. Ultimately, this is the process by which the couple can attach a dollar figure to their organization as a whole. Essentially, the business valuation results in a figure that serves to answer the question – if we decided to sell the company, what would it be worth right now? When this figure has been agreed-upon by both parties, the divorcing couple can decide how to proceed.
Business division
In a divorce, the couple generally has three options with how they decide to divide the business. They are:
- Sell the business and split the profits
- One partner buys out the other partner’s stake in the business
- The continue to run the business as co-owners
How they decide to proceed is usually due to a combination of factors. From the business valuation to how each spouse feels about the future of the organization, the final decision can be based on both emotional and financial factors.
It is wise to consider your options early on. Decisions about dividing the retirement funds or who gets the prized book collection might be straightforward but dividing your family business has numerous factors to consider. Whether you first decide how you would like to divide the business, or you get a business valuation first, both steps will need to be completed.