Divorce has a multitude of emotional and practical repercussions, but one of the most significant impacts for high-asset couples is the fair distribution of assets. Finding a workable agreement can be more challenging when a family business is involved.
Dividing a family-run company introduces added complexities to an already complicated process, which can be even more difficult if a prenuptial or postnuptial agreement does not exist. Each spouse must declare whether they want to be a part of the business going forward.
Three options for dividing a family business
The first step is getting an unbiased appraisal to determine how much the company is worth. Once the value is known, couples typically have three choices:
- One spouse retains ownership: This is the most common option, where one spouse buys out the other’s interest based on the appraised value and is typically a tax-efficient method. If the spouse buying the business doesn’t have enough capital, couples can craft a settlement note to be paid over time. Also, if the company repurchases shares from the departing spouse, it’s essential to consider potential capital gains taxes.
- Both spouses retain ownership: This approach can be beneficial when the couple remains friendly, and both have emotional ties to the company. While it is a straightforward financial approach, it may not work for former spouses who undergo a contentious divorce.
- Both spouses sell: This third option allows spouses to start their new lives without any business ties to one another, and they can use the proceeds to start a new business or retire. One of the drawbacks is that selling a business can take time and potentially lengthen the divorce process, while the spouses must find a way to work together until the sale is complete.
Draft a plan that works for you
There is no one-size-fits-all solution for dividing a family business during a divorce. Many divorced couples want to make a fresh start after ending their marriage, while others have no problems working with their former spouse.
An experienced family law attorney here in Texas can not only help you determine which route is best for your personal and emotional well-being, but also plot a course for the best financial outcome by weighing tax consequences and other potential costs.