Essentials Of Dividing A Business In Divorce

Colorado Springs business owners face unique challenges in a divorce when it comes around to dividing a business. Not only will a court divide the business, but it may also award the spouse a monthly support payment, called maintenance. Even a well written prenuptial agreement may not be enough to protect the assets of your business.

So are the two spouses supposed to stay in business together?  Typically, that’s not how it works.  Frequently, divorce occurs because of tension in the relationship. This tension between the parties will often persist long after the divorce is finalized. Therefore, one party’s commitment to carry on as a business partner with their former spouse after divorce may be unwise even for the smoothest of divorces.

Business owners usually have a few options when it comes to dividing their property: monthly spousal maintenance payments; a buyout; some combination of the two; or sale of their business interest.

Monthly Spousal Maintenance

Maintenance is a monthly payment to a former spouse. It’s a separate property division from splitting the business and you have to determine both.  Even if you sell your business, spousal maintenance is based upon income (and you might be imputed with income if it suddenly changes). Unfortunately, there isn’t a one size fits all to determine monthly spousal payments, especially with sole proprietor business owners.

The Buyout

One option that may seem attractive is a buyout. This may especially be appropriate if the spouses are business partners, and one spouse no longer wishes to be involved in the business. In this situation, the spouse who wishes to remain involved in the business might offer to buy the other spouse’s interest in the business. The amount of payment is likely to be influenced by: the value of the business; the duration of the marriage; and the departing spouse’s extent of involvement in the business.

Monthly Maintenance and Buyout

Often times, the result will be some combination of both a lump sum buyout, coupled with a monthly maintenance obligation. The award of separate interests in the business is one type of property division. The maintenance is another.  If there is a difference in income and resources between the parties, the court can order one party to pay the other support payments.  The reasonable needs of the spouse are important in determining maintenance.

Selling the Business

Another option that the parties might elect instead of dividing the business is to sell the business. In this case, the parties will make any payments necessary to cover liabilities, liquidate their business interest, and divide the proceeds. If the parties are nearing the age of retirement or if they no longer want to continue the business for whatever reason, this option may be appropriate.

Attorney Limitations

Attorneys are rarely qualified to make an assessment with regard to property values. A certified appraiser should handle this. Your attorney may be instrumental in choosing a qualified and experienced appraiser, and the attorney may also work with that appraiser to achieve common goals and meet deadlines.

One of the biggest mistakes people make in selecting an appraiser is to choose a profession based solely on low fees. In this industry, appraiser valuations and competency can differ significantly. If you choose someone who is inexperienced or an appraiser who doesn’t understand the intricacies of your business, you may wind up overpaying spousal maintenance.

Modern Family Law can help you better understand your options in a divorce. Contact us today for a free consultation.