If you own a family business, the question of what to do with it during a separation can be complicated. If you signed shareholder or partnership agreements, one spouse would not gain the primary interest. If your marriage ends, there are other options you can pursue.
It is important for separating spouses to specify the percentage of ownership of the family company they will retain after a separation. By doing this, the parties can ensure that the company will not be divided according to the same guidelines that govern the distribution of marital assets. In general, 10% of the value of the business will be considered an equal share of marital assets.
Moreover, such agreements are often extremely specific and stipulate what happens to the business once the owner changes status. For instance, buy-sell agreements can require the former spouse to waive voting rights or spousal clauses.
When it comes to valuing a company, there are two basic types of shareholder or partnership agreements. A partnership or shareholder agreement prevents one spouse from gaining primary interest in a family company in a separation. In these situations, the court will award the company to the spouse who was more active in running it during the marriage.
In some cases, a court can order a spouse to sell the family company in separation if he or she wants it. When a couple who has a family business divorce, it can be a complicated and messy matter. However, this scenario is rare. Entrepreneurs need to consider a prenuptial agreement that stipulates the percentage of the business to be given to each spouse after the divorce.
Fair Distribution of Marital Assets
When dividing assets in a divorce, it is essential to consider the marital status of any property you brought into the marriage. If the property has significant value, such as real estate, the courts may look at “any other factor” in determining its equitable distribution.
In the state of New Jersey, company ownership is treated as marital property if acquired during the marriage (www.womenslaw.org/laws/nj/divorce). Even if you received the company as a gift or inherited it, the value of the company increases during the marriage. The increase in value must be due to the active efforts of either spouse.
The value of your company can also impact how it is divided. If the company is family-owned, you and your spouse may have different ownership interests. If you are not the owner, you may own only a small percentage. If you are the co-owner, the entire company may be part of your marital estate. However, this does not mean you will have to give it up just yet.
It is crucial to understand that you cannot simply take the owner of the company and divide it. In such a situation, you will likely be unable to divide it equally. You must decide what is fair in the eyes of both parties. And do not forget to consider your goals when dividing assets. In equitable distribution, both parties should benefit from the assets that they own.
Buying Out Your Spouse
There are several options for buying out a spouse’s interest in his family business during a separation. If the company is part of the marital property, the spouse with the higher value may be able to purchase their former spouse’s interest. However, first, you must determine whether the business is marital or separate property.
Marital property is any asset acquired during the marriage, while separate property is anything acquired after the divorce. In cases where both partners are selling their ownership interests, buying out one spouse’s interest is the best option. However, if there is no other option, the spouses can also sell their interests to a third party.
The selling spouse may agree to sell their interest for less than the value of the company, which may negate any tax advantages that accrue to the paid spouse. It is important to understand how your state’s divorce laws apply to company ownership.
Buying out a spouse’s interest in a business is typically not an easy process. In some cases, it can even lead to further conflict if the company is community property. In such a case, a company may be valued for alimony or spousal maintenance, which you can learn more about by clicking the link. However, this may not be practical in most cases.
Another option is to co-own the business. This is a rare option for a private company, but it can be a good option for amicable spouses. This option can involve an agreement that one spouse will remain the primary manager and receive a certain percentage of the company’s profits. This can help both spouses satisfy their equal share of marital assets.