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What To Do With Your Family Business When You Divorce

What to do with your family business when you divorce

If you and your spouse are thinking about getting a divorce but own a family business in Tennessee, one of the major decisions you must make is how to divide the business’ value between you as part of your property settlement agreement.

What you decide to do most likely will depend on a number of factors such as the following:

  • Do both of you operate the business together?
  • Does one of you run it while the other keeps its books and pays its bills?
  • Does one of you not participate in the business at all?
  • Do neither of you run it, but have business partners and/or employees who do?

However you and your spouse answer these questions, you have the three following basic options as to what you do with your business as part of your divorce:

  1. Sell it and split the sale proceeds
  2. One of you buy the other out
  3. Both of you continue owning and/or operating it

Business sale

If neither you nor your spouse has a particular love for your business, this may be a good time to simply sell it and do something else with your respective lives. If it sells quickly, both of you receive a likely major inflow of cash with which you can do whatever you wish.

Before your business can sell, however, it must be valued. This means that you and your spouse must hire a business valuation professional to determine what your business is worth. Depending on the size and complexity of your business, this may take a while and cost several thousand dollars. Nevertheless, both the cost and the time probably are better than quickly selling your business to the first potential buyer who comes along and offers what likely is a low price.

Business buy-out

If you and your spouse are a high-asset couple, you may have additional property and assets that one of you can trade to the other in exchange for complete ownership and control of your business. This option usually works best if both of you agree on the value of the business and the value of the exchange property. If you do not agree on these values, you must hire not only a business valuator, but also, depending on the nature of the exchange property, appraisers or other experts in that type of property.

If you do not have sufficient nonbusiness assets to work an exchange, one way to pay for the buy-out is for the business to take out a special loan called a property settlement note. The business then pays the departing spouse, on behalf of the remaining spouse, the agreed-upon buy-out price over time and with interest.

Joint business continuation

You may be surprised to learn that some couples choose to continue owning and operating their family business together after their divorce. This can be a very workable solution for you and your spouse if you believe you can work together professionally even though you cannot live together privately. If this is the option you and your spouse choose, however, you may wish to have a business law attorney draft a buy-sell agreement for both of you to sign that sets forth an agreed-upon price or percentage should your continued working relationship become too much for one of you to manage, necessitating the need for a buy-out in the future.

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