How to Separate a Jointly Owned Business in a Divorce

By Rob Jennings J.D.

When a couple decides to split, they must separate not only their personal lives, but also their finances. Sometimes, this requires distributing a business that both spouses own. Although dividing some marital assets might be as simple as signing a car title or moving furniture from one house to another, dealing with a jointly owned business is considerably more complicated.

When a couple decides to split, they must separate not only their personal lives, but also their finances. Sometimes, this requires distributing a business that both spouses own. Although dividing some marital assets might be as simple as signing a car title or moving furniture from one house to another, dealing with a jointly owned business is considerably more complicated.

Step 1

Decide whether one of you will keep the business or sell it to a third party. If one of you handled the company's operations and the other functioned as a silent partner, you may choose to have the business appraised as an ongoing operation and distribute it to the managing spouse and compensate the other spouse's interest in the business with other marital assets. Plan for the tax consequences. Under current law, property transfers incident to divorce are exempt from federal taxation, but if you and your spouse sell to a third party, you could both be taxed on any realized profits from that sale.

Divorce is never easy, but we can help. Learn More

Step 2

Design your transfer plan and base it on the legal structure you and your spouse chose for your business. To transfer an unincorporated partnership the two of you ran together, a simple asset transfer agreement may suffice. List the assets and debts associated with the business, and describe how the party receiving the business will own it and be responsible for those assets and debts. Provide any title transfers or debt refinancing you feel is necessary. State the name of the business and confirm the exclusive right of the receiving party to operate under the business's assumed name. State the purchase price, if any. You will execute the same set of steps to transfer your unincorporated partnership to a third party.

Step 3

Transfer shares in a corporation by following the procedures set forth in your shareholder agreement. If your shareholder agreement contains no transfer provisions, draft and execute a share purchase agreement that provides for the transfer of stock. If you're the one taking over the business, you'll also need to update your stock ledger and share certificates. If your spouse was a corporate officer, you may also need to update your filings with your state's Secretary of State, or similar official. Review your state's corporation laws to identify any additional responsibilities.

Step 4

Transfer your interest in a limited liability company by reviewing and following the procedures set forth in the operating agreement. As with corporations, the steps required to transfer an LLC vary, depending upon your state's law. At a minimum, you'll need to draft a buy-sell agreement that clearly states the terms of the transfer or purchase. You will then need to update your filings with your Secretary of State, or similar official.

Divorce is never easy, but we can help. Learn More
How to Name a Beneficiary for an LLC

References

Related articles

How to Deal With a Partner Who Will Not Dissolve a Corporation

Dissolving your corporation is a necessary step in the process of winding up your business and ceasing operations. If your business partner disagrees with your decision to dissolve the corporation, the state law where the corporation was formed will govern the options available to you. Depending on your situation, a shareholder vote may resolve the issue, or you may have to file a lawsuit to force dissolution.

How Does a Limited Liability Company Work?

Limited liability companies (LLCs) are becoming increasingly popular as business entities that provide the limited liability advantages of corporations without the double taxation and all the formalities. While an LLC is frequently cast as a quick and easy alternative to incorporation and a safe alternative to sole proprietorship or partnership, before starting an LLC an entrepreneur should understand how the form works.

How to Become a Shareholder of a Corporation

A corporation is a business entity that is owned by shareholders. Each share represents a percentage ownership in the business. Becoming an owner in a corporation simply requires a person to legally acquire shares of that business’s stock. However, the process for acquiring stock varies depending on the type of corporation. Therefore, prior to investing in a corporation, you should investigate its type and any associated restrictions that go along with shareholder restrictions.

Get Divorced Online

Related articles

How to Transfer My Interest in an LLC

All owners, or members, of a limited liability company have a percentage of ownership of the business, referred to as ...

How to Omit a Member of an LLC

Since business relationships don’t always work out as planned, it may become necessary to terminate certain ...

How to Transfer One Sole Proprietorship to Another

A sole proprietorship is an extension of the person that owns the business. This means the proprietor is liable for all ...

How to Change Ownership in an S Corporation

An S corporation is a regular corporation that has made a special election with the Internal Revenue Service to pay ...

Browse by category