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What happens to the family business when you divorce?

On Behalf of | May 21, 2018 | Divorce |

If you and your spouse are a high-asset Nevada couple with a family business or professional practice, it likely is one of your major concerns if you are contemplating divorce. Deciding how you will divide it and how you will continue to operate it, if at all, after your divorce therefore is one of the biggest decisions you must make.

For most couples, the family business or professional practice not only represents the major source of income, but also the biggest asset. When arriving at a property settlement agreement, you have three basic choices as follows:

  1. Sell the business or practice and split the proceeds
  2. One of you buy out the other’s interest
  3. Both of you continue owning and running it post-divorce

Each choice has its own advantages and disadvantages. Which one is right for you depends on a variety of factors, including your own personal preferences.

Sale

Selling your business or professional practice and splitting the sale proceeds is the most drastic of your options and may be completely out of the question if one or both of you have substantial emotional ties to it as well as substantial financial ties. On the other hand, if both of you are “tired of it” and desirous of moving on to new challenges, selling can liberate you to take new directions in your respective lives.

The upside of a sale is that both of you will have substantial cash in a reasonably short period of time to do with as you wish. The downside is that you likely will need to hire a professional business evaluator to realistically determine the value of your business or professional practice and therefore its realistic sale price. It may cost you several thousand dollars for these services. The other possible downside is that your business or professional practice may or may not sell quickly depending on the market for such enterprises in your particular area.

Buyout

If one of you wishes to keep the business or professional practice but the other wants out, you will need to agree on the buyout price and the methodology by which the remaining spouse will pay it. Again, you may need to hire a professional evaluator to determine the overall value and the amount of each of your interests.

Generally, the remaining spouse has the following three ways in which to buy out the other’s interest:

  1. Trade it for other high-asset marital property
  2. Take on a new partner who will bring in enough cash for the buyout
  3. Obtain a business loan, often called a property settlement note, by which the remaining spouse pays the leaving spouse over time and with interest

Continued post-divorce ownership

Depending on if and how well you and your spouse work together, you may choose to continue owning and running your business or professional practice after your divorce. Surprisingly enough, quite a few couples find that they can successfully do this. Naturally, both of you must be able to separate your respective business lives from your private lives. Not all people can accomplish this, but if you both feel you can, continued joint ownership is the best option for your business or professional practice itself.

Under this solution, you need not be concerned about valuation per se or determining the value of your precise respective shares. On the other hand, experts advise that the two of you enter into a written agreement whereby you set forth which of you has which responsibilities and the amount each of you can take out of the venture. They also recommend that the agreement set forth an amount or a percentage that one will pay the other if a buyout becomes necessary in the future.

Going through a divorce is never easy, and throwing a business or professional practice into the mix only complicates matters. As with all divorce issues, however, the more cooperative and realistic each of you can be with regard to your family business or professional practice, the easier and less stressful your divorce will be.

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