Business as Usual?: Changes to the Business You Own with Your Spouse After a Divorce

Connecticut Divorce Attorneys Meghan Freed and Kristen Marcroft are married and own a business together and understand issues involved in co-owning a business with your spouse.At last count there were over 27 million entrepreneurs in the United States, so it makes sense that more and more people in Connecticut are forgoing traditional employment in favor of starting their own businesses. If they are married, some of them choose to establish a business with their spouse.  But what happens to the business if the spouses divorce?

Continue to Co-Own the Business With Your Former Spouse Post Divorce

The simplest scenario is that both spouses maintain their co-ownership of the business after the divorce.  But the simplest approach technically may not be the simplest approach emotionally. Continuing to co-own the business works best if the divorce was an amicable one and you are prepared to work together afterward for the good of the company. Benefits to this option include:

  • No need for an expensive valuation
  • Neither of you has to sell your respective share of the business

Continuing to share ownership may not work for you if a good working relationship with your former spouse is unachievable or trust has been broken. In this case, you will need to conduct a business valuation in preparation for division along with other marital assets.

How Business Valuation Works in Divorce

In a divorce professional valuation, a business appraiser calculates the financial worth of the enterprise so that it may be fairly divided between the owner spouses. They review the company’s income, expenses, assets, and liabilities in order to arrive at an accurate market price. In Connecticut, the three most common methods of assigning value are:

  • Income-Based Approach. The company’s worth is based on its current or future earnings.
  • Market Approach. The appraiser values the business by referring to other transactions. This can include a comparison of financial data, stock prices, sales prices of similar companies, and past stock transactions.
  • Asset-Based Approach. The company is valued using the fair market value of its liabilities and assets.

Once the appraiser calculates a sales figure, there are two options for dealing with the business in a divorce: buying out your spouse or selling the company and dividing the proceeds according to degree of ownership.

Buy Out Your Former Spouse

You can purchase your former spouse’s share of the business during or after the divorce by paying cash or offering assets of similar value in exchange. This is a feasible arrangement if the other party doesn’t want to stay involved in the company.

Sell the Company

This option is self-explanatory: generally, the approach is that you and your spouse agree in the divorce to sell the company and split the profit according to percentage of ownership. If you want to explore new business options after the divorce, a sale will give you the financial proceeds you need. Otherwise, you can use the money to prepare for the next stage of your future.

Learn more about how to protect a business during divorce here.  Or, if you own a business with your spouse and are ready to file for divorce or want to learn more about how this might work in your particular situation, contact us and speak to a team member about your situation HERE.

Written by Freed Marcroft