WHEN BUSINESS PARTNERS DIVORCE: WHAT YOU

NEED TO KNOW

During a marriage, your life becomes intertwined with that of your spouse. Possessions often belong equally to both parties, which is a big reason why the division of property can be such a contentious part of divorce. Splitting belongings at the end of a union can become heated and complex, and this situation is further complicated if you and your spouse were business partners in addition to being life partners.

In an already intricate situation, a divorce between business partners presents a whole new set of challenges and problems for the people involved. This situation brings up a number of issues that will have to be addressed as you go through the process, and it can be a tricky road. Here are some considerations to keep in mind as you go.

YOUR BUSINESS IS AN ASSET

You may have poured your blood, sweat, and tears into your business, and dedicated every waking moment of your life to making it a success. You may have a deep, profound personal attachment to your enterprise whether it’s an accounting firm, a construction company, or you repurpose thrift store clothes to make dog outfits.

Though you may have an emotional connection to your business, it is, at the end of the day, an asset, one that can be broken up and distributed in a divorce. It may have great personal value to you, but there is also a real-world worth, a dollar amount that you will need to take into consideration during the division of property.

ORIGINS OF THE BUSINESS

One factor that can have a huge impact on the fate of your business in divorce is when, where, and how it was founded. If you and your spouse started a company together during your marriage, it may be considered community property in California and treated as such in the divorce. If not, however, there are a number of things that may impact this, or at least help determine how much of a business is eligible to be allocated.

If your business predates your marriage, it will, at least in part, likely be viewed as separate property. A number of components can influence this status. The court may take into account the value of the business at the time of your marriage versus at the time of your divorce, looking at whether the worth increased, decreased, or stayed static. If community efforts aided in raising the value, this may be considered. For example, if you invested in the company, but those funds came from resources shared with your spouse, that may impact the final settlement.

Similar things can occur in other circumstances as well. If a business was passed down from a family member, the court may take into account any community time and property used to benefit the company. Things get even more complicated if there are other business partners or shareholders to consider. If you started a business with capital from outside investors, that can impact how much may be considered separate or community property.

OPTIONS FOR DIVIDING A BUSINESS

When it comes to dividing up a commercial venture between spouses in a divorce, there are a number of ways to proceed. The most common strategy is for one partner to buy out the other and continue to run the company as usual. This works best when there is unequal interest in the business and when one spouse is more involved in the day-to-day operations.

Perhaps you and your spouse are business partners in name only and you run the business. If that’s the case, this may be a good way to move forward, something that may benefit both parties. In some situations, this can represent a big shift for the company, and you may want to pause a moment to consider the larger repercussions.

Depending on the circumstances, it may be possible to divide a particular business, with each party running their portion. For instance, if you and your spouse are accountants, each with your own set of clients, it may be possible to split things down those lines.

Though your marriage may be ending, that doesn’t always mean your business partnership has to conclude. If a split is amicable enough, you may be able to continue with business as usual. Perhaps the two of you simply didn’t work as a married couple but can continue to work together in a professional capacity. This obviously depends on the nature of the divorce and the relationship you maintain in the aftermath, but in some instances, this may be an option, though a risky, potentially thorny one.

If you and your spouse are unable to come to an agreement on how to split up your business, you may have to sell it and divide the proceeds. Though this may be an option, it is one with its own set of dangers. Whether or not your company sells, and for how much, may depend on many factors like what line of business you’re in, the demand, and competition. Still, the odds are not great. Some estimates place the number of small businesses that sell on the open market at approximately 30%.

As is usually the case in divorce, if you and your spouse own a business together and split up, you may want to enlist professional help. An experienced attorney can help guide you through this complicated process, and perhaps a forensic accountant may be able to straighten out the tangled web of dividing your business.

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