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What happens to your family business when you divorce?

If you and your spouse own a Texas family business and are contemplating divorce, your business likely represents the majority of your marital assets. Consequently, how you “split up” your business will greatly impact your respective post-divorce lives.

As Forbes reports, you generally have the following three options for what to do in such a situation:

  1. Sell the business and split the proceeds
  2. One of you buy out the other’s interest
  3. Both of you continue owning it

Sale

Selling your family business may be your best option if neither you nor your spouse has strong ties to it and both of you are ready to walk away from it. Be aware, however, that despite the fact that a sale could net each of you a sizable sum to spend as you please, you will need to spend money in order to make money. Your major expense likely will be hiring a professional business evaluator to determine your business’s value, the value of your respective shares, and a realistic business sale price. In addition to what could be a substantial outlay for this person’s services, you also need to take your local commercial real estate market into consideration. If it is currently soft, it could take several months to sell your business, during which time you and your spouse must continue running it yourselves.

Buyout

If one of you has strong ties to the business but the other one would just as soon be out from under it, a buyout could be your best option. Again, however, you will first need to determine the value of the departing spouse’s share. Then the staying spouse will need to decide how to pay the departing spouse. Generally, (s)he will do this in one of the following ways:

  • By exchanging other marital property for the departing spouse’s share value
  • By bringing cash into the business via investment capital or obtaining a new partner who brings cash into it
  • By getting a business loan by which to pay the departing spouse the value of his or her share over time and with interest

Continued joint ownership

If both you and your spouse love your business and neither of you wants to leave it, you may want to consider continued joint ownership of it. While this option may appear counter-intuitive at first, given that the two of you are getting a divorce, continued joint ownership can be a viable option assuming that both of you can separate your business lives from your personal lives. Surprisingly enough, a significant number of divorced couples continue to successfully own and operate their family businesses after their divorce.

This is educational information and not intended as legal advice.

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