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How to deal with a jointly-owned business during a divorce

On Behalf of | Aug 5, 2021 | Firm News |

Deciding how to divide marital property during a divorce is challenging enough, but it is even trickier if you own a business together. If you had a pre-or postnuptial agreement that defined who would get the business upon divorce, there are fewer questions as to what will happen.

However, if there was no plan, you will have to figure out what to do with the business on your own or with the help of professionals.

Common options for managing the company

According to American Environics, there are three common ways to deal with the business during a divorce. One is to sell the business to a third party and divide the profits. Another is for one spouse to buy out the other’s share of the company and run it for him- or herself. A third option is to continue operating the business as partners.

Many couples choose the first two options, as seeing each other every day and having to communicate can be difficult, especially if the two are unable to be civil with one another. However, running the company together can happen if each ex-spouse recognizes the contributions of the other one, they each have different defined roles and they can both be mature about the whole process.

How to conduct a valuation

If a couple chooses to sell the company, either to someone else or one of the partners, the U.S. Chamber of Commerce details three of the common ways to evaluate the business:

  • Earning value approach – Bases the business’s value on projected future earnings
  • Asset-based approach – Determines the cash value of the company from the selling of all assets
  • Market value approach – Looks at other similar businesses in the area to determine the value

Some financial experts use a combination of all approaches to determine the value of a business more accurately.