Divorce can be an extremely complex and difficult thing, emotionally, financially and logistically. There are services, such as one offered by a partnership of LegalZoom and It’s Over Easy that let you divorce online rather than spending enormous amounts of time and money doing it the traditional way through the court system.
However, what happens if you own a business together? If your divorce is uncontested you can still use an online service to simplify your divorce, but what happens with the business? What should you know if you’re divorcing your spouse and yet the two of you work together?
How do you manage things like the division of assets and reach a satisfying agreement in this specific situation?
Buyouts
There are a few main ways that couples who own a business together may handle a divorce. One way is a buyout. During a buyout, which is a fairly simple approach, one spouse will buy the other’s interest in the business.
If a couple owned a business together that was valued at $250,000, the spouse who was going to keep the business and continue running it would owe the other spouse $125,000 to do so.
While this is a fairly simple solution, it’s not without its own problems. One problem is the fact that a spouse may not have enough cash-on-hand for an outright buyout. If this is the case, and the divorcing spouses can get along well enough to come to an agreement, they may create a payment plan rather than doing a buyout as a lump sum.
Co-Owning the Business
Of course, if you’re divorcing and neither one of you wants to give up the business, there is an option as well.
Rather than distributing the business to one spouse or the other, you can continue to both own it even after you’re divorced. This can be a challenge if you aren’t getting along or amicable though.
If you both continued to co-own the business but maybe weren’t able to be with each other on a day-to-day business, one spouse could continue operating it, and then pay the other spouse a portion of proceeds.
While there are definite downsides to both spouses continuing to own the business, there are benefits as well. For example, it doesn’t require you to go through the often lengthy process of valuing the business.
Seperate Emotional Aspects From Everything Else
When you’re getting divorced and the situation is heightened, there is a tendency to view everything through an emotional framework. It is important to work through that and seperate business and financial issues from the emotional issues that are happening.
If you can break down each particular area of the business and your overall finances that need to be worked out, it can go more smoothly. Of course, that can be easier said than done, but a neutral third-party can be a big help in this.
Selling the Business
If buying the other spouse out or retaining co-ownership of the business aren’t the best option for a divorcing couple, there is also another option which is selling it. When you decide to sell a business, you are going to have to go through the valuation process so you know how much to sell it for. This can be a good option for spouses that own a business that is likely to sell relatively quickly.
However, if your business doesn’t sell quickly, there can be a set of other issues that arise. For example, if you are selling the business it’s likely because you don’t see yourself getting along well enough with your spouse to be able to take any other path. Yet, if your business is on the market for a long time, you’re going to be working together during that period.
The better option for couples who are even considering going into business together or are already in business together but not yet married is to formalize a plan while things are still good. It’s like a prenuptial agreement or it could even be included within a prenup. It can be awkward to talk about what will happen to the business if you ever divorce, but if you have a preemptive plan in place and the relationship does end, you won’t be deciding how to handle the business through the blurred lens of emotion. Unfortunately, this kind of planning is something a lot of couples don’t do because it’s not necessarily pleasant, but then they’re left scrambling to come up with what’s probably going to be a less-than-ideal solution if they do end up divorcing.