Dividing up assets in a divorce is hard enough, but when the spouses own a business together, things can get even tricker. Once the business partners find out what the value of the business is, they can decide what to do.
Generally, there are three options that a divorcing couple has regarding the business division.
Determine the value of the business
To give the couple an idea of how much their business is worth, they will need to have it valued. The U.S. Chamber of Commerce discusses the three main methods of valuation. The earning value approach uses either past or projected earnings to determine value. This method is common when a company wants to merge with, or purchase, another business.
The asset-based approach subtracts the business’s liabilities from the assets to determine value. This is more common for corporations than sole proprietorships. The third method is the market value approach. This looks at similar businesses that have sold and base a company’s worth off the sale price.
Options for division
Once the partners have a general idea of the value of the business, Market Business News discusses the options a divorcing couple has to divide their joint business. One is to sell it to a third party and split the profit. This is often the cleanest way, although it may take a while to sell, and it may not be the best option if one of the spouses wants to keep the business.
If one spouse wants to retain ownership, he or she can buy out the other’s interest and own it outright. This works the best if this spouse has enough money to pay the other in full.
The other option is for both to remain co-owners of the business. This may work if the partners respect each other and can separate their personal and business lives. In some situations, one remains a silent partner and the other one runs the business.