Dividing property is an important and challenging matter in a divorce, which can have long-term financial consequences. In addition to property division of personal assets, such as the family home, many spouses must deal with the complex process of dividing the family business.
There are various options for allocating business assets. First, however, a neutral third-party must usually perform a formal appraisal to determine its value. The most common option is one spouse keeping the business. That spouse typically buys out the other's interest based on its appraised value. This option has tax advantages because the direct purchase of shares is classified as a non-taxable transfer of property that is incident to the divorce.
When the spouse acquiring the business lacks liquid assets to purchase the business, the couple can structure a settlement note for repayment over time. Or, the company can buy back the departing spouse's shares if each spouse owns shares in the company. Capital gains taxes may need to be paid if the sale is not designed carefully.
The spouses may also decide that they will both continue to keep the business. This has financial advantages and allows spouses who have emotional ties to the business to continue to work together and stay involved. However, this has the obvious disadvantage for couples who have trouble working together after they end their marriage.
A third option is selling the business and dividing the proceeds. This allows each spouse to go their own way by starting a new business or retiring. However, the sale can take time and lengthen the time until the divorce is resolved. Until the sale is final, both spouses must figure out a way to work together or decide if one spouse stays involved until the sale is completed.