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How divorce can affect the business that you own with your spouse

On Behalf of | Jun 29, 2021 | Divorce

Starting a business with your spouse can be a smart move. It ensures you both maintain a say in the company and are equally invested in its long-term success. However, joint ownership can quickly cause complications if you intended to divorce.

While both of you may work for the company that you started together, neither of you may want to work with the other in the future. Both of you probably have your own ideas about how much the company is worth and what the fair way to handle it will be in your upcoming divorce

There are multiple different solutions that can help spouses who are also co-owners of a business. 

You can agree to have one spouse buy the other one’s share

When it is clear that one spouse has more of a commitment to or interest in the company, the best option may be if that individual keeps the company and the other finds new employment or other sources of income.

This solution works well for younger couples who still have plenty of time to redevelop their career after a divorce. It may not be as realistic if both of you are close to the age of retirement. 

You might agree to joint ownership with certain conditions

If the two of you can keep things amicable during the divorce, you might be able to stay coowners afterward. You will likely need to negotiate some very specific business contracts to protect each of you in such an arrangement.

For example, perhaps one spouse will be an owner on paper only, meaning they have a right to income from the company but no involvement in its day-to-day operations. Alternately, each spouse may retain some decision-making authority that only applies in certain scenarios. One might handle all employee conflicts, while the other handles financial matters. Some couples find that it is possible to continue operating their business together after they divorce.

You might both agree to sell the business so that you can move on

Your business probably represents a substantial amount of the income you earned while you were married.

You may have invested in real estate or equipment for the company. You may have even spent years developing a brand that people know and trust. If your company is successful or has valuable assets, you may be able to sell the company for a profit and split the proceeds.

Any of these three approaches can work for those thinking about how to split their business after a divorce. Being open to negotiations and putting a proper valuation on the business will be crucial for those handling a jointly-owned business in an upcoming divorce.