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Divorce and your family business

If you and your spouse contemplate obtaining a Connecticut divorce, your joint business or professional practice adds one more layer of complexity to what already may be a contentious situation. Your family business likely is not only your largest marital asset, but also your major source of family income. Consequently, deciding how to equitably divide it via your property settlement agreement probably represents one of your most pressing concerns.

In general, you and your spouse have the following three basic options:

  1. Sell your business and equitably divide the proceeds between you
  2. One buy out the other's business interest
  3. Continue owning the business jointly

Although each option comes with both advantages and disadvantages, only you and your spouse can decide which one works best for your particular situation.

Sale

Selling a business usually involves a lengthy and complicated process, and selling yours under the stress of your impending divorce makes for an even more potentially difficult situation. In all likelihood, you will need the services of a business valuation expert since neither of you has the objectivity or financial expertise to realistically determine your business' value or its selling price. These services cost several thousand dollars, especially if your business is large and/or consists of numerous and/or complex holdings.

Depending on your community's current real estate market, another disadvantage of a sale is that it may take you several months or even a year or more to sell your business. On the other hand, if your business sells quickly, both you and your spouse receive a substantial cash inflow that you can use as you please, including starting up another business.

Buyout

If one of you wants to keep the business and the other has no problem walking away from it, a buyout probably represents your best option. Here again, however, you may need to hire a business evaluator and/or other expert(s) to determine not only your business' value, but also the value of the share each of you has in it. Once you know these figures, then the issue becomes how the staying spouse pays the leaving spouse. Again you have three basic options:

  1. The staying spouse "pays" the leaving spouse by means of exchanging other marital assets of equal value for the leaving spouse's business share.
  2. The staying spouse acquires a new business partner or other investment capital source that provides the buyout funds.
  3. The staying spouse obtains a business loan, or property settlement note, by which (s)he pays the leaving spouse for his or her share over time with interest.

Continued joint ownership

Your final option, that of continued joint ownership after your divorce, may make more sense than you might think at first blush. Assuming you and your spouse believe you can successfully separate your business lives from your personal lives, continuing to own and operate your business together is the option most advantageous to your business itself. Here you need not value the business, nor do you need to value each of your shares in it. In addition, your business need not face interruption due to a new owner or partner.

Should you and your spouse choose this option, however, experts recommend that you draft and execute a business partnership agreement. This document should set forth such important agreements as each partner's percentage share of ownership, each partner's duties and responsibilities, and the procedure for a future buyout should such a need arise.

Divorce is never easy, no matter what the couple's circumstances. Dealing with issues related to your family business in addition to all the other issues you face while going through a divorce only adds to the potential stress and acrimony. Your best strategy is to act like an adult, keep your emotions in check as much as possible, and get the legal and financial advice you need.

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