At last count there were over 31 million entrepreneurs in the United States, and the numbers are continuing to climb. If they are married, some of them choose to establish the enterprise with their spouse. These cases of shared ownership raise questions about what happens to the business if the couple divorces.
The simplest scenario is that both parties maintain their co-ownership of the business. If your divorce was amicable and you are willing to work together again afterward, this arrangement works well. Benefits to this option include:
No need for an expensive valuation
Neither of you has to sell your respective share of the business
Continuing to share ownership may not work for you if angry feelings prevent a good working relationship with your former spouse or you don’t trust them to always make decisions with the good of the company in mind. In this case, you will have to get the business valued in preparation for division along with other marital assets.
The Valuation Process Explained
In a professional valuation, a business appraiser calculates the financial worth of the enterprise so that it may be fairly divided between the owner spouses. They review the company’s income, expenses, assets, and liabilities in order to arrive at an accurate market price. In Washington, the three most common methods of assigning value are:
Income-Based Approach. The company’s worth is based on its current or future earnings.
Market Approach. The appraiser values the business by referring to other transactions. The comparison can be based on financial data and sales prices of similar companies.
Asset-Based Approach. The company is valued using the fair market value of its liabilities and assets.
Goodwill. The reputation of the business and goodwill may also be a consideration with certain businesses.
Once the appraiser calculates a sales figure, there are two options for dealing with the business in a divorce: buying out your spouse or selling the company and dividing the proceeds according to degree of ownership. However, some professional service companies may not be divided.
Buying Out Your Former Spouse
You can purchase your former spouse’s share of the business by paying cash or offering assets of similar value in exchange. This is a feasible arrangement if the other party doesn’t want to stay involved in the company.
Selling the Company
This option is self-explanatory: you sell the company and split the profit with your former spouse according to percentage of ownership. If you want to explore new business options after the divorce, a sale will give you the financial proceeds you need. Otherwise, you can use the money to prepare for the next stage of your future.
If you own a business with your spouse and intend to file for divorce, View Ridge Family Law & Estate Planning can assist you in obtaining a fair and accurate award and support your future plans for the company. To contact us and speak to a team member about your situation, call 206-336-9195.