What Happens to the Family Business Following a Divorce

If you are going through the emotional ordeal of a divorce, it is a difficult and sometimes overwhelming experience. It is a situation where the assets you and your spouse acquired together must be divided. If a family business is involved, it is even more challenging. If the two of you are not able to reach an agreement on the division of the business, a court will issue a ruling on it. Long Island divorce & family law firm, Wisselman, Harounian & Associates can help in this situation.

Marital Property Or Separate Property

A court may decide the rights to ownership of a business during a divorce. In this situation, a court must determine if the business is separate property or marital property. The court will want to know the date a business was established. They will also look at the nature of funding for the business as well as contributions by each spouse to the business. The valuation of a business before the marriage and at the time of divorce are also considerations.

Transmutation

It is possible for a business to be identified as marital property even if it was owned by one spouse prior to the marriage. A court will take into consideration the contributions of each spouse, and the mixing of marital and separate funds from each spouse into the business during the marriage. A non-owning spouse quitting a job to work in the business is also a consideration. When separate property is determined to be marital property, it is known as transmutation.

Gift Or Inheritance

It is also possible for a business acquired during a marriage to not be considered marital property at all. Should the family business be given to one spouse as a gift, or as part of an inheritance, it may not be designated as marital property. Should there be a prenup or written agreement between spouses prior to or during the marriage determining who owns the business after a divorce, it may also not be considered marital property.

Valuing The Business

Our Long Island divorce & family law firm understands that valuing a business is important and complex, and we work with a variety of specialists in related fields to help on issues such as valuating a business. A professional appraiser or forensic accountant can review the financial information of the business and provide a valuation. Asset approach lists the difference between the assets and liabilities of a company to determine its value. The income approach values the business with its cash flow.

Buyout

Should one spouse want to operate the business without the ex-spouse, a buyout could be a solution. It is possible for part of the divorce agreement to have one spouse buy out the other spouse’s share of the business. This will require having a valuation of the business both spouses agree is accurate.

Co-Ownership

In some divorce situations, it is best if the spouses remain co-owners of their business after the divorce. In this case, each spouse wants the business to continue. Some spouses want to maintain a business, so they can eventually give it to their children.

Sell The Company

Should a divorcing couple not reach an agreement on the business, it may come down to selling the company to a third party. The income stream provided by the business is eliminated and with a pending divorce, it could have a lower sale price.

Divide Business

It is possible for a business to be split into two separate companies. Here, each divorcing spouse will not lose the business. They will each have control over a new version of the business.

A divorce is not easy. It is more difficult when a family business is involved. Wisselman, Harounian & Associates has many years of experience dealing with complex and high net worth assets relating to divorce.

Contact Wisselman, Harounian & Associates today (516) 773-8300 and discuss how to obtain the best possible result for your divorce situation.