How to Divide the Business in a Divorce

by Rob Jennings
Your business may be your livelihood, but it can also be a marital asset.

Your business may be your livelihood, but it can also be a marital asset.

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Just as marriage is both an economic and emotional union, divorce is both an emotional and economic breakup. In addition to separating your personal lives, you must figure out how to divide the property you accumulated during the marriage. While this is seldom easy, the experience can get even more complicated when one of the things you have to divide is a business.

Step 1

Figure out what the business is worth. In order to do this accurately, you should probably have a valuation performed by a certified public accountant. While people sometimes think of a business's worth as being the sum total of its assets minus liabilities, additional value comes from brand recognition, stream of clients and general goodwill in the community. Making a mistake in valuing your business during the divorce process could cost you a great deal of money when you're having to compensate your spouse for his share or, alternatively, when your spouse is compensating you.

Step 2

Decide who should receive a distribution of the business in order to maximize its value. Some businesses that would be valuable in one spouse's hands would be worthless in the other's, as is often the case with service businesses such as lumbers and electricians, or professional practices. While you can theoretically sell a business and split the proceeds, professional practices and some service businesses have little to no value without the professionals or tradesmen who were running them.

Step 3

Arrive at a mechanism for compensating the other spouse — the one who won't be getting the business — for her fair share. Once you've arrived at an acceptable value and resolved who should receive the asset, you can compensate the other party with a larger share of the other marital assets, smaller share of the marital debt, or cash — called a "distributive award" in some states — paid out over time. Depending upon the value of the business, it may be appropriate for the other side to walk out with all the other marital assets and no debt.

Step 4

File a lawsuit and go to court if you can't reach an agreement on how to divide the business. While legal fees in contested separation cases can run in the tens of thousands — and sometimes hundreds of thousands — of dollars, it may be money well spent if the business in question has a bright future and provides you with a significant stream of income. Property division laws vary from state to state, but a court will likely distribute the business to the party in whose hands it can produce the most value and order that party to compensate the other with more assets, less debt or a distributive award.