What happens to the family business when spouses divorce?

On Behalf of | May 28, 2021 | Divorce

You and your spouse may own a business together in Oakland that has grown and prospered over the years. However, your marriage might not have been as successful as your business, and you may decide that getting a divorce is in your best interests. However, what are your options for dividing the business you worked so hard to build?

Option 1: A buyout

If one spouse wants to keep the business and the other spouse does not, it may make sense for the spouse keeping the business to buy out their ex’s share in it. This will be a transfer incident to divorce if the transfer takes place within one year after the divorce is finalized. It can also be a transfer incident to divorce if it is stated in the divorce decree that the transfer must happen, and the transfer does happen within six years following the finalization of the divorce. It is important to note that the spouse keeping the business must have sufficient assets to either pay for the buyout outright or obtain a loan.

Option 2: Sell the business

Sometimes neither spouse wants to keep on running the business on their own. They may not be able to afford to or they may simply want a clean break from the past so they can move forward into new ventures. When this is the case, it may make sense to sell the business and split the proceeds. It is important to keep in mind that certain factors such as marketability, profitability and the economy may mean it can take a while to find a buyer, so one or both spouses either need to keep running the business until it sells or shut its doors.

Option 3: Stay on as co-owners

In a more unusual option, some spouses may find that they are still good business partners, even if their marriage failed. In this case, they can both continue running the business as co-owners. Now, this will not work for everyone. The spouses must be able to be respectful and they must be able to communicate with one another effectively. It can help to draw up a written document containing the specifics on each spouse’s role in the business and their responsibilities, to avoid potential conflict down the road.

Learn more about property division in Oakland

When spouses going through a divorce also co-own a business, deciding what to do with the business can be a thorny issue if spouses do not agree on what to do. In these situations, it is good to know that help is available. This post is for educational purposes only and does not contain legal advice. Our firm’s website on property division may be of use to those who want to learn more about this topic.