How To Divide a Family Business in a Divorce: Divorce poses unique challenges for female entrepreneurs, particularly when it involves dividing business assets. This summary, based on a Retirement Daily webinar, outlines key considerations for women business owners facing divorce.
Divorce and Business Ownership
In a divorce, the first step is to identify and categorize all assets as either marital (for sharing) or non-marital (usually retained by the owner). For family-owned businesses, this process requires careful planning and legal counsel. The business, if deemed a marital asset, will be valued and equitably distributed between spouses. The involvement of each spouse in the business can significantly influence whether the business or its value increase is considered a marital asset.
Determining the Business Value
The business’s value is crucial in divorce proceedings as it impacts other matters like child and spousal support. Valuation methods include comparing similar businesses, using forensic accountants or professional appraisers, and examining financial statements and tax returns. The chosen method depends on the business’s nature and the divorce’s complexity.
Tax Ramifications and Other Considerations
Divorcing spouses must understand the tax implications of business asset division. For instance, a buyout is not typically a taxable event, but selling a business share later may incur capital gains taxes. Additionally, how the business is managed during the marriage can affect its classification in a divorce. The division of the business can also impact employees and operational dynamics.
Protecting Family Business Interests
Prenuptial or postnuptial agreements can protect business interests in a divorce. These agreements can specify the exclusion of business assets from marital property. Shareholder or operating agreements and buy-sell agreements are also vital tools for safeguarding business interests, particularly in divorces involving multiple business owners.