Three options for dealing with the family business in a divorce

On Behalf of | Apr 19, 2021 | high asset divorce |

Many young married couples New Hampshire choose to go into business together, and after a while their business may become very lucrative. However, business success does not always mean marital success and once the couple reaches middle age, they may separate with the intention of divorcing. As part of the property division process, they will have to make some important decisions, including what to do with the business they have grown together.

Option 1: One spouse keeps the business

One option is for one spouse to keep the family business and buy out their ex’s share in the enterprise. Generally, the buyout is considered a transfer incident to divorce, rather than a sale, for tax purposes. However, to be considered a transfer incident to divorce, the transfer must take place within one year after the divorce is finalized or within six months after the divorce is finalized if the divorce decree requires the transfer. In addition, a buyout will only be possible if the spouse keeping the business has enough liquidity to afford to do so. Some spouses will need to take out a loan from a bank in order to afford to buy out their ex’s share in the business.

Option 2: The spouses sell the business

Sometimes, neither spouse has the liquidity to buy out their ex, or perhaps they simply are not interested in continuing the business. In this case, they may choose to sell their business and split the proceeds. It is important to note that it may take years to find a buyer, so the spouses will need to agree on how to manage the business in the meantime. In addition, it is important to get an independent appraisal of the business. This can help spouses agree on a selling price.

Option 3: The spouses co-own the business

A rather unusual option is for both spouses to continue co-owning the business together after they divorce. This generally will only work if they are on good terms with one another and are able to cooperate as business owners. It is important that spouses who choose this option agree on exactly what each of their roles in the business will be. This agreement can be documented in a formally in writing via an operating agreement or a shareholders’ agreement.

Learn more about property division in New Hampshire

Dealing with complex assets, such as a family business, in a divorce is something most people do not want to handle alone. It is important to seek professional help. This post is for educational purposes only and does not contain legal advice. Our firm’s website on divorce for business owners may be a useful resource for those who want to learn more about this topic.