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.

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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.

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Can a Spouse Sell a Business Before a Divorce?

References

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