Understanding What Can Happen to Your Joint Business During a Divorce

No one enters into a business partnership with their spouse expecting it to end in divorce. Still, the unfortunate reality is that about half of all marriages in the United States end in divorce. When a business partnership dissolves, the fallout can be disastrous for both the business and the individual partners. This article will explore some of the things that can happen to a joint business during a divorce and some tips on protecting yourself and your business interests.

1. Your business may be classified as a marital asset.

In many states, all assets acquired during the marriage are considered marital property and subject to division in a divorce. This includes businesses that husband and wife jointly own. If your business is regarded as a marital asset, it will be valued and divided between you and your spouse in the divorce.

Depending on the state you live in, there are different ways that businesses are valued. Some states use a fair market value approach, which values the company based on what a willing buyer would pay for it on the open market. Other states use an earnings approach, which values the business based on its past and future earnings potential.

2. You may have to buy out your spouse’s interest in the business.

If your business is classified as a marital asset, you may have to buy out your spouse’s interest in the business to keep it. This can be a complicated and costly process, so it’s essential to consult with an experienced business attorney to ensure that you protect your interests.

You can also negotiate a buy-out with your spouse yourself, but it’s essential to have an attorney review any agreement before signing it. A buy-out agreement should include provisions for how the business will be valued, how you will make payment, and what will happen to the company if one of the partners dies or becomes disabled.

3. You may sell your business to pay for your divorce.

If you and your spouse can’t agree on a buy-out price for your business, the court may order the company to be sold to pay for your divorce. This is usually a last resort, but it’s essential to prepare for the possibility. When a business is sold to pay for a divorce, the proceeds are typically divided between the spouses based on their ownership stake in the business.

You may be able to protect your business interests in a divorce by negotiating a prenuptial or postnuptial agreement with your spouse. These agreements can specify how the business will be divided in the event of a divorce. It’s essential to consult with an experienced family law attorney to draft a prenuptial or postnuptial agreement to protect your interests.

Hands of two people each holding a pen to sign a prenuptial agreement with two rings near the signature lines

4. Your divorce may impact the business’s ability to operate.

Divorce can be a disruptive event for any business, but a husband and wife who jointly own companies may be especially vulnerable. The divorce process can take months or even years to complete, and the uncertainty can make it difficult for the business to operate.

If you’re going through a divorce, it’s essential to keep the lines of communication open with your spouse and try to agree on how you will operate the business during the divorce. If you can’t reach an agreement, you may need a court order to protect your interests. As much as possible, you should try to keep the business running during the divorce so that it can be successfully sold or divided between the spouses.

5. You may have to give up control of the business

Sometimes, the only way to protect your interests in a joint business is to give up company control to your spouse. This can be a difficult decision, but it may be the best way to protect your investment in the business. If you give up control of the company, you should ensure that you have a written agreement. This document should specify how someone will operate the business and what will happen to your ownership interest in the company if you divorce.

Giving up control of the business may not be the best option for everyone, so you should consult with an attorney to determine what is best for your particular situation.

No matter what, divorce will always be a difficult and stressful process, especially if you own a business. It’s essential to consult with an attorney to protect your interests and ensure that you reach a fair agreement with your spouse.

Whenever possible, you should try to keep the lines of communication open and agree on how to best operate the business during the divorce. Only by understanding all of your options will you be able to make the best decisions for yourself and your business.

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