Divorce Does Not Mean the End of Your Family Business
Divorce can be devastating not only for a family, but also for a family-owned business. In Utah marital property is divided equitably by the court is the parties cannot reach agreement. Dividing property in a divorce can affect whether the business can survive or must be liquidated. However, a divorce, annulment or separation need not derail a successful business with some cooperation and a little planning.
Initial Considerations for a Business Owner Facing Divorce
Divorcing business partners have several options:
- Continue with the status quo, however it is a rare situation when a couple can continue working together effectively after a divorce
- Change responsibilities at the business and/or hire new employees
- Buy out the other spouse's interest in the business or sell the entire business and divide the profits
If either or both spouses will be selling their share of the business, the first step is to determine whether the business and its assets are separate property or part of the marital estate. Separate property falls under one of the following four categories:
- Property obtained before the marriage
- Property obtained during the marriage through inheritance
- Property received during the marriage as a gift from a third party
- Payment awarded during the marriage for pain and suffering in a personal injury lawsuit
All other assets obtained during the marriage are considered marital property. Even if a business was owned by one spouse before the marriage, any increase in the business' value during the marriage becomes part of the marital estate.
Issues of Valuation Must Be Addressed
The next step is to establish the value of the business, which can be done with the help of a valuation expert. This is especially important if some of the business assets are part of separate property and others were acquired during the marriage and therefore part of the marital estate.
The best way to protect a family business during a divorce is to establish parameters and contingencies while the business and marriage are going well. This can be done through a prenuptial or premarital agreement, a trust or a buy-sell agreement. Assets transferred to a trust are not subject to division at the dissolution of a marriage and a buy-sell agreement sets out exactly what happens to ownership interests at triggering events such as divorce.
If you are going through a divorce with your business partner, contact an experienced Utah divorce attorney to discuss how the separation will affect your business and what option might be best for your individual situation.
