What Happens to a Shared Business During a Divorce?
When a couple decides to end their marriage in divorce, one of the many issues they must think about is the division of assets. While spouses can usually find a middle ground when it comes to assets such as vehicles and the family home, other assets can be more difficult to share. The matter of sharing assets can become complex in situations such as when both spouses have an ownership stake in a business.
If you are wondering how you can go about dividing a shared business, here are some options:
If your divorce is amicable and you can maintain a respectful professional relationship with your former spouse, you may want to remain co-owners. Co-ownership is suitable if you both wish to continue operating the business once your divorce has been finalized. Another version of co-ownership is if one of you no longer wishes to be involved in the day-to-day operations but wants to keep a stake in the business. In such a case, the one who agrees to run the company must pay the other a percentage of future profits equal to their share. You should note, however, that you may encounter problems with the second option if the business no longer turns a profit.
Buying out the other spouse
Another way to divide a business at the end of the marriage is for one spouse to buy the other’s share. A buy-out is an option when one spouse wants to keep the business, while the other intends to leave the company. The spouse who wishes to keep the business must agree to pay the other an amount that is equal to their share. For example, if you and your spouse have equal ownership of a company that is worth $400,000 and you wish to keep the business, you must pay your spouse $200,000.
While most spouses who are being bought out of a business are given a lump sum, a spouse may agree to accept payments made in installments. For instance, a spouse may accept a payment of $100,000 upfront and consent to receive the other $100,000 the following year.
Selling the business
If the other options will not work in your situation, you may want to consider selling the business and splitting the proceeds. While this is usually the best option for most divorced couples, it is not without challenges. If your business is not very profitable, for instance, it may take a long time to find a buyer. You may also encounter difficulties if you and your spouse disagree about the value of the business.
Do you need a Toronto divorce lawyer to help settle disputes over a shared business?
Co-ownership, buying out a spouse or selling the business are the most common options when dividing a shared company during a divorce. However, the process of dividing a business can become more problematic if the company is in debt, or if there are additional owners or third-party agreements to consider.
If you are going through a divorce and you and are uncertain what to do with a business you own with your spouse, contact us at Baker and Baker Family Law.
At Baker and Baker Family Law, we have the necessary background to help with complicated property matters, including dividing business interests. We will help you to extricate your business affairs from your spouse, or if you both wish to maintain ties to the business, we can help you reduce the impact your divorce has on the company.
So, give us a call today to schedule a legal consultation with one of Toronto divorce lawyers. Let us show you how we can help.