Business as Usual?: Changes to the Business You Own with Your Spouse After a Divorce.

At last count there were over 27 million entrepreneurs in the United States, so it makes sense that more and more people in Connecticut are forgoing traditional employment in favor of starting their own businesses. If they are married, some of them choose to establish the enterprise with their spouse. These cases of shared ownership raise questions about what happens to the business if the couple divorces.

The simplest scenario is that both parties maintain their co-ownership of the business. This arrangement works best if the divorce was an amicable one and you are prepared to work together afterwards for the good of the company. Benefits to this option include:

  • No need for an expensive valuation
  • Neither of you has to sell your respective share of the business

Continuing to share ownership may not work for you if a good working relationship with your former spouse is unachievable or trust has been broken. In this case, you will need to conduct a business valuation in preparation for division along with other marital assets.

The Valuation Process Explained

In a professional valuation, a business appraiser calculates the financial worth of the enterprise so that it may be fairly divided between the owner spouses. They review the company’s income, expenses, assets, and liabilities in order to arrive at an accurate market price. In Connecticut, the three most common methods of assigning value are:

 

  • Income-Based Approach. The company’s worth is based on its current or future earnings.
  • Market Approach. The appraiser values the business by referring to other transactions. This can include a comparison of financial data, stock prices, sales prices of similar companies, and past stock transactions.
  • Asset-Based Approach. The company is valued using the fair market value of its liabilities and assets.

 

Once the appraiser calculates a sales figure, there are two options for dealing with the business in a divorce: buying out your spouse or selling the company and dividing the proceeds according to degree of ownership.

Buying Out Your Former Spouse

You can purchase your former spouse’s share of the business by paying cash or offering assets of similar value in exchange. This is a feasible arrangement if the other party doesn’t want to stay involved in the company.

Selling the Company

This option is self-explanatory: you sell the company and split the profit with your former spouse according to percentage of ownership. If you want to explore new business options after the divorce, a sale will give you the financial proceeds you need. Otherwise, you can use the money to prepare for the next stage of your future.

If you own a business with your spouse and intend to file for divorce, Freed Marcroft can assist you in obtaining a fair and accurate valuation and support your future plans for the company. To contact us and speak to a team member about your situation, START HERE.

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