Divorce Considerations for the Business Owner

Divorce Considerations for the Business Owner

It is perhaps redundant to say that divorce is an unfortunate, although sometimes necessary, affair for all involved. In best case scenarios the divorce is mutually agreed upon by both parties with a neutral division of marital assets. This, however, is not always, and even not usually, the case. Business owners in particular must be aware of the potential repercussions of a divorce, which if not carefully considered might affect their business in negative ways.

Property Division

In a divorce context, everything both spouses own or have a right to is expected to be divided, including debts. Real estate, furniture, furnishings, bank and investment accounts, and retirement accounts are perhaps the most common forms of shared property, followed by life insurance and, yes, business interests.

Hiring a Business Valuation Professional

Business owners should consider hiring for the job of estimating the value of shared assets a trained professional. This is the case when owners often find themselves with the prospect of having to pay half the value of the business to their spouse plus maintenance, regardless of whether or not the spouse had anything to do with the business itself. Having an accurate valuation of the business can help in deterring a settlement that detrimentally impacts the stability of the business.

However, a business valuation can costly, frequently thousands of dollars. To avoid this high costs, business owners should consider settling their divorce and the value of their business through mediation. Contrary to the exorbitant time and expense of using two opposing business evaluators, an experienced mediator is often able to offer time and costing savings alternatives.

Tax Advice

Courts do not typically deduct capital gains taxes that may be payable in the event that a business is sold, which means that the actual net proceeds from the sale of a business interest may be drastically reduced as a result of taxes payable on the sale. It may be worthwhile for divorcees to consider hiring a tax consultant as well to consider the numbers with them and to help avoid stepping into any tax snares. Here again, mediation may prove time and cost effective. An experienced mediator can help the divorcing couple get the tax information they need to make informed decisions and reach an amicable agreement concerning the impact of capital gains taxes on the value of a business.

It’s not impossible to have an amiable and amicable divorce with your spouse. However, for business owners, the risks are much greater. Business owners who are divorcing should carefully weigh their options, and consider the advantages of having business valuation, tax, and mediation professionals who can help them reach a mutually satisfactory agreement concerning their business interests.