Joint business ownership and divorce

When a married couple owns a business together and decides to divorce, one of the biggest considerations is what happens to the business. This can add tremendous complexity to an already challenging situation.

Each spouse needs to evaluate the situation without letting emotions get in the way. There are numerous possibilities for them to consider, based on what is best for each individual and the business itself.

Valuation of the business

Assuming the couple started or purchased the business after they married, and with marital money, the American Bar Association discusses that the first step to take is to obtain a formal appraisal to determine the business’s value.

A neutral third party should conduct the process, and it is often a good idea for each partner to hire an appraiser to ensure a fair outcome. There are three approaches, the income, market and asset approach, from which the appraiser may choose to determine the business’s value.

Options for the business

According to Forbes, there are typically three options the couple has to divide the business. One option is to sell the business to another party and split the profit. Depending on the age and interests of the spouses, this may be a good option, but it can take time to sell, which requires the couple to continue to work together and lengthens the process of the divorce.

A popular option is that one spouse keeps the business and buys the other spouse’s half. This option is more time-efficient and can be beneficial tax-wise if done correctly. Payment may include cash, stock shares or a payment plan.

The easiest option from a business perspective, but the hardest one emotionally, is for both spouses to continue to run the business together. This option is not for everyone, as it can be a challenge to work together post-divorce.