Three possibilities to consider when business owners divorce

On Behalf of | Jan 27, 2020 | Business Valuation |

Chicago-area couples who have a mutual marital interest in a highly profitable business may financial success, but their marriage may not be so successful. If they decide to divorce, they will have to determine what to do with their privately held business, if it is part of the marital estate and thus subject to the division of assets. This is no small feat — millions of dollars may be at stake. The following are three possibilities business owners might want to consider if they are facing a complex, high-asset divorce.

Consider a buyout

In a buyout, one spouse will purchase the other spouse’s interest in the privately held business. Sometimes a spouse has enough cash and/or liquid assets to afford the buyout. Another option may be for the purchasing spouse to receive a loan or other financing to buyout their ex. A third option may be for the purchasing spouse to offer other marital assets through the property division process of equivalent value to their ex’s share of the business. There are tax advantages to buyouts incident to divorce. However, there could be tax consequences if the purchasing spouse ultimately sells the business to a third party in the future.

Put the business up for sale

A buyout may not be a financial possibility for some spouses. For this reason, some spouses going through a divorce agree that they will sell their privately held business and divide the proceeds in an equitable manner. When the parties agree to sell the business, they must consider the business’ marketability, profitability and the current economic conditions. This means it could take years before the sale of the business is complete. In addition, if one party wants the business to continue operating and the other party wants to sell the business, there generally must be a court order for the sale to proceed.

Continue running the business with mutual marital interests

Not every divorce is acrimonious. Sometimes, if both spouses want to remain involved in the continuation of their privately-held business, they may choose to stay on with mutual marital interests. This will generally only work if the spouses can cooperate on a professional level, setting emotions aside. For some, this means co-managing. For others, this means one party will have primary management rights, while the other party will be granted a certain percentage of future earnings. It’s also important to keep in mind the need for written agreements relating to the management of the company such as operating agreements and/or employment agreements.

Married couples in Chicago who have mutual marital interests in multi-million dollar businesses face significant decisions regarding the future of their business if they divorce. Business valuation is complex, but necessary when considering the future of your business post-divorce.

A high-asset divorce deserves the assistance of a law firm with experienced business valuators, forensic accountants and financial mediators. A financial mediator, for instance, can discuss the options available to the parties in a confidential setting. If you or your client need the assistance with a high-asset forensic divorce, our firm’s website may be of use.