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Divorce and the family business

Ohio couples who own a business together but are thinking about ending their marriage must decide if and how the business will continue and, if so, how they will split its value between them. This can become very complicated very quickly.

As Forbes explains, the couple has three basic choices as follows:

  1. Continue owning and operating the business together
  2. Have one spouse buy out the other’s interest
  3. Sell the business and split the proceeds

Each option has its own advantages and disadvantages, and each couple must decide which option is best for them.

Continued joint ownership

If the spouses think they can continue to work together even though they will not be living together, continued joint ownership is a workable solution. The advantage is that the business continues as normal, each spouse maintains his or her ownership share, and there is no need for an expensive company valuation.

Conversely, the spouses will have to work together in the company, usually on a daily basis. This continued enforced togetherness may put additional strain on an already strained relationship. The QuickBooks Resource Center strongly recommends that couples who choose this alternative have their attorney draft a buy-sell agreement setting forth not only the specific duties of each spouse, but also an agreed price or percentage that one spouse will pay the other should this working relationship not work out.

Buy-out of one spouse by the other

The advantage of this option is that one spouse continues to own and operate the business by paying the other spouse his or her fair share of it. It works best where one spouse has no particular interest in remaining involved.

The major disadvantage is that the spouses must hire a professional business valuation company to determine how much the company is worth. This can cost several thousand dollars, but is necessary to arrive at the buy-out price. If the spouses have sufficient other marital property, it is possible that one spouse can exchange his or her share of it for the other spouse’s interest in the company.

Sale of the business

Sometimes spouses decide that the best solution is to sell the business and split the proceeds. Here again, a professional business valuator will need to determine how much the company is worth. Then it must be placed on the market. If it sells reasonably quickly, both spouses soon have cash to do with as they please, including starting a competing business. If it takes several months or even a year to sell, however, the couple must be prepared to continue operating it together during that period.

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