When a marriage ends, assets and liabilities are split up through a process called equitable distribution. Certainly, properties like vehicles and houses are easy to distribute. However, when a business is involved, several questions arise on whether and how to divide the business. Read on to find out how you can deal with this issue.
Marital VS Separate Property
The first thing to ask when dividing assets is if the business is marital or separate property. Only If it’s marital property is it eligible for division. However, certain factors will determine what a marital property should be.
If one party owned the business before the marriage and kept it as a separate entity during the marriage, it is separate property. It means that they didn’t mingle the business interest with marital properties and joint accounts.
On the contrary, the business is marital property if both parties purchased it together. It is also marital property if one spouse purchased it alone, but the other made significant contributions to the business. Or if a spouse commingled funds from the company with other marital assets.
Sometimes, it can be tricky differentiating marital property from separate property. Therefore, it’s best to have divorce lawyers in Delaware County, PA, assess your case.
Common Ways to Divide a Business in a Divorce
Buy-out
A buy-out is the most common method of dividing a joint business. Here, one spouse buys out the other spouse’s interest in the business. A buy-out is usually not complicated. If both couples own an equal percentage of the company, one spouse will pay the other 50% of the business’ value.
In most cases, buy-outs only work when the spouse buying the business has a lump sum to give to the other spouse. However, some couples may agree to structure the payment over time. Additionally, the spouse taking ownership can agree to concede another asset for the business interest rather than cash.
Co-ownership
Another way to divide a business is not to divide it and jointly own it after the divorce. For co-ownership to work, both spouses have to trust and respect each other. Therefore, co-owning is best if the divorce is amicable. They can continue to have a productive working relationship in such scenarios and keep any business agreement intact.
In less amicable situations, both parties can decide that one person will be an absentee owner while the other runs the business. The absentee spouse will receive payments from the profits as part of his/her share of the marital property.
Co-ownership doesn’t work for every divorce case. Therefore it’s best to have divorce lawyers in Delaware County PA, analyze your situation before making any decisions.
Sell the Business
Another excellent way for spouses to divide a business is to sell it and share the proceeds. The act of selling also applies to other marital properties, such as houses and cars. Therefore, it’s a generally acceptable option of division.
However, there are specific challenges with selling a business. One such challenge is that it might take time to sell, especially if it isn’t making profits. Another drawback is if there’s an economic downturn at the sale time, leading to fewer profits. Additionally, if one spouse is emotionally attached to the business, he/she will be opposed to a sale.
Conclusion
There are three popular methods of diving a joint business in a divorce. However, they each have their pros and cons. Consider discussing with divorce lawyers in Delaware County, PA, to help you make the best decision.
