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 a business with their spouse. But what happens to the business if the spouses divorce? How is this complicated piece of property divided?
Continue to Co-Own the Business With Your Former Spouse Post Divorce
The simplest scenario technically is that both spouses maintain their co-ownership of the business after the divorce. But the simplest approach technically may not be the simplest approach emotionally. Continuing to co-own the business works best if the divorce was an amicable one and you are prepared to work together afterward 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.
Read: High Net Worth Divorce
How Business Valuation Works in Divorce
In a divorce professional valuation, a business appraiser calculates the financial worth of the enterprise so that it may be fairly divided between the owner spouses. Sometimes spouses will agree to hire one joint expert in mediations and collaborative divorces. In litigations, it’s more common for each spouse to have an expert.
Business valuators 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 main 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. In some cases, creative solutions involving a structured buyout or alimony are also a possibility.
Buy Out Your Former Spouse
You can purchase your former spouse’s share of the business during or after the divorce 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.
Sell the Company
This option is self-explanatory: generally, the approach is that you and your spouse agree in the divorce to sell the company and split the profit 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.
The Comprehensive Connecticut Property Division Guide
How to divide property is one of the most important issues in divorces. And, it’s one of the most confusing. There are no set formulas or rules on how property will be divided. The good news is that creates tremendous flexibility for experienced divorce attorneys to craft an individualized approach. In order to prepare to make solid and informed decisions, you need to understand how property division works. Our Comprehensive Connecticut Property Division Guide tells you everything you need to know about property division in Connecticut.
For more information about Connecticut divorce and family law, check out our Divorce Information and Facts.