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What happens when a divorcing couple owns a business?

Individuals will spend years, even decades, planning, building, growing and maintaining a business. Whether it is a corner shop or an enormous, multi-layered organization it takes dedication and skill to create and manage a successful company. Unfortunately, it is not uncommon for a married couple to form and run a business together. Even if the partnership is not explicitly stated in the operational bylaws, both individuals in the relationship might provide valuable insight that must be recognized when the marriage is at an end.

The primary factor responsible for the property division being a smooth and efficient process is the business valuation.

Business valuation is sought for numerous reasons, including:

  • Gauging the success for the organization
  • In preparation of selling the business
  • To provide data in a tax or litigation dispute
  • Dissolving a partnership
  • Divorce

Unfortunately, business valuation isn’t an exact science. There are nearly as many methods of reaching a conclusion as there are factors to influence the result itself. The valuation methods can include:

  • Asset valuations
  • Future earnings valuations
  • Income multiple valuations
  • Market worth valuations
  • Rules of thumb

It can be challenging to reach a mutually-agreed-upon business valuation, but the struggle can proceed from there. With the value of the business fully understood, how will it be divided in the divorce? Negotiations can be complex and often emotionally charged, but there are generally two methods a divorcing couple will follow:

  • Sell the business and split the profits.
  • One partner buys the other partner out of his or her share of the business based on the valuation.

While these might be the most common resolutions, every situation is unique. A couple might decide to continue working together after the divorce to ensure the success of the business. A couple might decide to hire a third party to oversee the day-to-day operations of the organization freeing them up to work behind the scenes – lessening their need to work in close physical and emotional proximity. It is wise to discuss these matters with an experienced legal professional to ensure you thoroughly understand all of your options.

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