Dividing Your Business: What Happens in Divorce?

As part of the divorce process, many assets and liabilities will have to be divided between the two spousal parties through a process called equitable distribution. Essentially, a court will classify property as either marital or separate, place a value on the property, and then distribute amongst the spouses. A bank account is an easy item to value. However, if there is a business involved, the process can get complicated. 

Firstly, business valuation for divorce purposes can be much more challenging than valuations for other purposes.

1. Rules differ among jurisdictions.
2. There are no clear valuation guidelines in most states (i.e. there is no specific definition of value in state statutes governing divorce). 
3. Divorce courts exercise a great deal of discretion. 

Secondly, if the business is the primary asset, things can get exponentially complex if:

1. You own the business with your spouse and you end up being business partners with your soon to be ex.
2. You have to take out debt on the business in order to meet your equitable distribution obligation.
3. You’re forced to liquidate the business, eliminating your primary source of cash flow.
4. You have non-related business partners. 

The good news is that there are ways to protect yourself ahead of time so that your business will survive. You can:

1. Get a postnuptial agreement. 
2. Get a buy-sell agreement. 
3. Keep personal and business expenses separate so the business remains your separate property.
4. Put the business in a trust to remove it as a marital asset.

Join us at the EPI Rocky Mountain Chapter Event on March 10, 2020, 7:30 am – 9 am to learn more on this topic. Reserve your spot today.