How to Divide a Jointly Owned Business in Divorce: Strategies for Protecting Value and Income

Building a successful business with your spouse requires dedication, collaboration, and a shared vision. But what happens when the marriage ends? Because the division of a jointly owned business during divorce presents unique challenges, it’s important to approach this situation strategically to preserve the value of the business and the income it generates.

In a recent episode of A Better Divorce Podcast  with Andrea Vacca, we spoke with Steve Schleupner, a divorce transition specialist, to discuss this very issue. Schleupner, with his extensive background in financial planning, life coaching, and business succession planning, offers valuable insights into how couples can approach this delicate situation.

RELATED: What You Need to Know if You Own a Business With Your Soon-to-Be-Ex with Steve Schleupner

Options for Dividing the Business

When it comes to jointly owned businesses, couples facing divorce often have several options:

• Co-owning the Business: While it may not seem like the obvious choice, many couples choose to continue owning and operating the business together even after ending their marriage. This requires a high degree of maturity, communication, and a willingness to establish clear boundaries. Schleupner emphasizes the importance of creating a new operating agreement that outlines roles, responsibilities, and decision-making processes.
• One Spouse Buys Out the Other: In this scenario, one spouse retains full ownership of the business while compensating the other for their share. Schleupner cautions that this option requires careful consideration, as the spouse taking over the business assumes 100% of the risk and responsibility.
• Selling the Business: For some couples, selling the business outright and dividing the proceeds may be the most practical solution. This allows for a clean break and avoids the challenges of continued co-ownership.

Understanding the Challenges

Schleupner highlights some critical challenges when dividing a business during a divorce:

• Weighing the Risks of Buying Out Your Spouse

If one spouse keeps the business after a divorce, they must be prepared to find someone else to handle the tasks that their former partner took care of. This often means hiring and training a new employee, which adds expenses and potential risks. Customer relationships may also be affected during the transition. Before deciding on a buyout, ask yourself: Are you willing to take on 100% of the responsibility and risks while losing half of the business value when buying out your spouse? If the answer is no, it may be worth considering selling the business or exploring a shared ownership strategy.

• Overlooking Business Nuances that Impact Value: The nuances of the business, such as future revenue projections and potential risks, might be overlooked during the divorce process. This can lead to an inaccurate valuation of the business and unfair settlements.
• Tax Implications: Many couples don’t realize that liquidating a business has significant tax implications. Whether the payout is through a lump sum, or an installment note, the tax treatment can vary significantly. It’s essential to factor in these tax considerations to avoid unexpected financial burdens.
• Impact on the Business and Employees: Divorce can disrupt the business’ operations and affect its bottom line. Decisions about the business may need to be made quickly, which can impact employees and their families.

The Importance of a Support System

It’s important to have a strong support system in place when going through a divorce, but this is especially true when a business is involved. In addition to the lawyers or mediators helping you and your spouse divorce, couples who own a business together are well advised to seek guidance from other professionals such as financial advisors, accountants, therapists, and business coaches. These experts can provide objective financial advice, help couples communicate effectively, and facilitate a smoother transition.

Looking Beyond the Divorce

Ultimately, Schleupner encourages couples to view divorce not just as a transaction but as a life transition. By focusing on their aspirations for the future and working together to achieve those goals, couples can emerge from the divorce process stronger and more resilient.

Securing Your Business, Securing Your Future

Protecting your business during a divorce requires a proactive and strategic approach. With careful planning, open communication, and the right legal counsel, you can ensure the continued success of your business and emerge from the divorce process stronger than ever.

At Vacca Family Law Group, we understand the unique issues high-net-worth couples face when divorcing with a jointly owned business. We will help you understand your rights, protect your interests, and make informed decisions for the future. Contact us today for your free introductory call and learn how we can assist you in moving forward with confidence.

Vacca Family Law Group is located at One Grand Central Place, 60 E. 42nd St., Suite 700, New York, NY 10165