What Happens to Your Small Business During Divorce?
When facing divorce proceedings, the division of marital assets is often a straightforward process. But what happens when there is a company in the mix? Small business ownership is a common occurrence in divorce proceedings and there are several approaches that can be taken when deciding the future of the company.
Determination of Small Business Ownership
Before you can make a decision on the future of the business in question, you must first determine whether the business is, on paper, a shared marital asset. Keep in mind that Louisiana is a community property state. As such, most organizations are considered marital assets. Divorce proceedings divide them equally amongst spouses. When you determine business ownership, it is not simply a question of who worked primarily on the business or who the legal owner was, but rather a combination of factors. These include:
- When you started the business or when you acquired it
- Whether money from the marriage was used to begin or fund the business
- Whether the business has increased in value during the period of the marriage
- The personal efforts of each spouse in the building or operation of the business
- Any sacrifice made by a spouse to allow the other spouse to pursue the business
Options During Divorce
There are several options available to spouses regarding the future of their shared ownership during a divorce.
Continuing Business as Usual With Some Modifications
This is an uncommon choice for divorcing spouses. However, it is a possibility in certain circumstances when the parties feel they can work professionally alongside one another. This is a complex option for obvious reasons. It also requires the parties to set specific roles within the company, salaries, and responsibilities to ensure each spouse is fairly represented and compensated. This option allows both spouses to continue working as part of their shared company. It also presents various challenges and obstacles that require forethought and planning for success.
Sell the Shared Business
Oftentimes at the close of a marriage, both parties prefer to plan for new beginnings. In that case, they choose the route of selling the company asset and equitably dividing the profits of that sale. This is an efficient and quick resolution to the shared small business when both parties are willing to part with it. Make sure a viable buyer is available and is willing to purchase at a reasonable value.
Negotiate a Buy-Out of a Spouse’s Interest
A common solution taken by parties with a shared company asset is for one party to buy-out the interest of the other spouse. The negotiation for purchase is either for money or in consideration of other marital assets. This solution is best when one spouse has a clear interest in continuing the company while another spouse is willing to sell their interest and move on. This is often one of the easiest and most popular options for resolving company ownership during a divorce.
Each of these options presents its own set of unique challenges and obstacles during a divorce. It is up to the spouses and their counsel to come to an agreement for the solution that keeps each of their best interests at heart. Sometimes, parties are unable to come to an agreement as to the division of the small business as a marital asset. In these cases, it ultimately falls on the court to decide the fairest and most equitable division.
If you share a small company with your spouse and are facing divorce, contact our team at The Ellender Law Firm to discuss your options.
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