Business owners face some unique circumstances when proceeding through a divorce. The situation can be especially complex if the divorcing spouses are co-owners of a company. There are three main options for resolving a dissolution and shared business interests, as outlined below.
One party keeps the business and pays a property settlement amount to buy out the other party’s business interest
This approach prevents a forced liquidation of the company, and allows one party to retain his or her ownership interest in the company. A professional business valuation would likely be necessary to determine how much you and your spouse’s respective ownership interests are worth so that the appropriate buy-out amount could be determined and negotiated.
The downside to this approach is that if your business interests are by far the largest asset in your marital estate, you could be left with little else other than your business, or you could end up making periodic property settlement/equalization payments to your soon-to-be ex-spouse for months or years into the future.
You may also need to consider whether a Non-Compete Clause would be necessary for the party leaving the business; your company may not be worth much if your spouse leaves but takes a large chunk of clients and immediately opens a new, similar business.
The parties continue to co-own the business after the dissolution
This is clearly a risky approach, since you will essentially have to continue to co-exist in the business world with your ex-spouse. If you are both minority shareholders or co-owners along with several other individuals, and your split is amicable, this may be a viable option.
You may want to consider discussing this option with the other owners of your company as well if you and your spouse are seriously contemplating this arrangement. You don’t want to fall into a scenario where you and your ex-spouse’s residual contempt interferes with the operations of your company. If you and the other co-owners routinely vote on business decisions, the other owners may not be agreeable to being placed in the awkward position of “choosing sides” on a regular basis.
Courts may also be very hesitant to order this continued co-existence if both parties are not in agreement, so this is likely only a feasible option if you and your spouse agree to it outside of court.
The parties sell the business and split the proceeds
This is probably the cleanest option from a financial standpoint, as it allows both parties to be reimbursed fairly for their share in the business. You would need to include details regarding how to determine the fair market value for the company, what kind of purchase agreements would be acceptable and how you would divide business responsibilities until the company does sell.
However, there may be roadblocks to this arrangement depending on the industry in which your business operates, whether your company (if you two are not the sole owners) allows parties outside of the current owners to purchase your shares and whether you two can agree on a selling price.
Your company’s Bylaws or Buy-Sell Agreements, other stockholders, outstanding business loan requirements or other specific circumstances in your case may affect the viability of each option above. Discussing these issues with an attorney who is well-versed in this facet of domestic law will help you decide which route makes the most sense for the interests of you and your business.
Leslie Lorenzano is an Indiana family law attorney with the firm Cordell & Cordell. She holds degrees from Purdue University and the University of Arizona Rogers College of Law. She is licensed in Indiana and also practices in the US District Court Southern Indiana District. She is a member of the Indiana Bar and the ISBA Young Lawyers Section.
Ms. Larenzano has worked extensively with custody law and is a frequent contributor in child-related issues for DadsDivorce.com.