Two spouses opening a business together often makes a lot of sense when they are married. They already know each other well, they understand the complementary skills they bring to the business and their lives are already financially intertwined. Many small businesses are owned by couples, with other family members sometimes involved as employees.
But what happens if that couple decides to get divorced? The business is a marital asset, so they both own it. How should they address this during property division? Does it mean the business has to close?
3 different options
While some businesses do close when partners divorce, it is not always necessary. There are three main options couples can consider:
- Buying half: One spouse may want to stay with the business and could buy the other spouse’s share. This can be done directly by taking out a loan to purchase the other half or by trading other marital assets, such as a retirement account or a home, to balance the division.
- Selling outright: Another option is to sell the business entirely. After the sale, the couple can divide the proceeds, pay off any remaining debts and split their marital property. The downside here is that they basically lose their source of steady income, along with the marriage.
- Working together: Couples can choose to continue working together after the divorce, transitioning their relationship to a professional partnership. In such cases, it’s wise to draft a formal partnership agreement to outline roles and responsibilities.
Divorcing while owning a small business can be complex, and there are many options to consider. Taking the time to evaluate these options carefully can help ensure the best outcome for both parties.