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Options for Divorcing Couples that Co-Own a Business

Posted by Mattis Law, A.P.C. on April 1, 2022 in Divorce

Divorcing couples that own a business

A couple may have established a business during the term of a marriage, complicating the financial issues in a divorce. This issue can be very challenging as the two partners are unable to continue as marriage partners – or business partners, and the business assets must be legally divided. If you own a business with your spouse and a divorce is pending, you have several options.

Continue the Business Partnership 

Two former spouses may decide to continue a business partnership, even when the marriage is over. This solution can allow the business to continue to grow and provide income to each partner. This solution can be successful for former spouses who tend to get along, and do not have issues in contention. The financial agreement in these cases may involve one spouse no longer being present working in the business. Each arrangement should be worked out in detail in a legal agreement.

Sell the Business and Divide the Profits

Some former spouses who own a business may choose to sell the asset and divide the profits, rather than continuing a business partnership. The business must be professionally valued, put on the market and sold to another party, which can take time to bring to a successful conclusion. This solution requires the former spouses to agree on a selling price, and legal issues associated with cases in which the business has other stockholders. Matters to be sorted out include any outstanding business loans, the business bylaws, existing buy-sell agreements, and other financial details must be fully resolved prior to the sale.

One Spouse Buys Out the Other

One spouse may want to continue to own the business and buy out the other spouse’s interests. How the purchase is accomplished can vary widely, based on the financial resources of the purchasing spouse. It may involve trading other assets for business assets, cash payments, payments over time, or other financial agreement put in place to purchase the asset. A full business valuation must be performed, and the purchase price agreed upon, and every detail of the transaction outlined in a professionally drafted agreement. 

One Spouse Sells Their Interest in the Business to a Third Party

In some cases, one spouse will choose to sell their interest in the business to a third party. This solution can be challenging, as the new co-owner could be beneficial to the other spouse or could pose a problem for the other spouse. The best-case scenario is selling the interest to a new partner acceptable to the former spouse. 

California Law and Selling Business Assets

Under state law, divorcing spouses are prohibited from selling, transferring, encumbering, concealing, or assigning assets while the divorce is pending, which applies to all assets including co-owned businesses. The law has many exceptions, such as the right to sell assets to pay for reasonable living expenses, attorney fees, the costs associated with divorce, and many other business-related scenarios. It is important that you are fully aware of what you legally can and cannot do with regard to business assets during your divorce.

Divorcing a Business Partner? The Right Attorney Matters

Resolving the division of property in business co-ownership requires the assistance of an attorney with a breadth of experience in complex property division matters. To decide how to manage the critical issue of co-ownership in a business and a pending divorce, we have garnered a reputation for excellence in these matters.

Contact Mattis Law, A.P.C. at (858) 328-4400 for a no-cost initial consultation. 

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Posted in: Divorce

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