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How to handle a small business during divorce

On Behalf of | Jul 13, 2020 | Divorce, Property Division

Allentown plays host to a vast array of small businesses, from dance studios and bike shops to theaters and landscapers. These businesses strengthen local economies and add diversity to communities across the Lehigh Valley.

For the people that own these businesses, they serve as more than just pillars of community. A small business might be someone’s lifelong dream and the realization of many years of hard work. For many small business owners, their business functions as a family affair, involving their spouse and occasionally even their children.

During divorce, business assets require a great deal of consideration as spouses try to disentangle their personal and financial situations. When deciding how to handle a small business, divorcing couples usually settle on one of three common options, according to the American Bar Association.

Sharing the business

If the couple can put aside their differences for the good of the business, keeping the business entity intact can help separating spouses avoid the complex and messy process of dividing up their company. Separating spouses may make changes to the management structure to avoid conflicts at work. A legally enforceable agreement about the re-situated business relationship can reduce the potential for future conflicts.

Offering a buy-out

If one spouse has a particularly strong attachment to the business, they may consider buying the other spouse’s portion of the company. Since divorce proceedings can make accessing other financial assets difficult, the purchasing spouse might have to rely on loans to achieve sole ownership.

Selling to a third party

While many business owners might balk at the idea of allowing a third party to take control of their business, selling the company may be the most efficient method for resolving the business division conundrum. Once the business sells, the profits can be divided up between the controlling interests according to any number of agreed-upon terms.

Each of these options will differ based on the unique situation posed by the couple. The final outcome and compensation for either spouse can change based on several factors, including:

  • When, how and by whom the business was formed
  • Each spouse’s role in managing or maintaining the business
  • Market valuation of the business
  • Business-related debts

Property division, and business division in particular, can be complicated. An experienced high-asset divorce attorney can help guide business owners through the challenges these assets pose and help them find legal options that work best for them.

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