What happens to a family business in a Utah divorce?

Dividing a family-owned business during a Utah divorce can quickly grow complex and overwhelming.

According to The Wall Street Journal, approximately one-third of all companies that are considered family businesses are owned by a husband and wife. This type of setup can become complex for so-called "CoPreneur" in Utah who are going through a divorce.

Splitting the business can take on a number of forms, depending on what the couple's wishes are and what is considered to be fair. Utah's divorce laws will play an integral role in what happens to the company.

Utah's property division laws

As the Utah Courts points out, the state abides by the theory of equitable division. This implies that how a couple's assets are split should be based on what is fair, and not necessarily what is equal. A couple is permitted to develop an agreement on their own, but a judge will need to review it to ensure that the terms are fair to both people. If a couple cannot agree, the courts will make the decision for them.

Marital vs. non-marital property

Only marital property is eligible for division. A business is considered marital property when both spouses are considered owners. If one spouse owned the business prior to the marriage and the other spouse did not have any interaction with the company, it is possible that the business could be protected from division. However, if the owner of the business transferred an interest in the business to the other spouse, the company will likely now be marital property.

Additionally, if a business is considered non-marital property but expanded during the marriage, it could become marital property. This could happen, for example, if the business used the couple's joint bank account to fund the expansion. Lastly, funds earned from a non-marital business are often considered a joint asset unless a prenuptial agreement states otherwise.

Dividing the company

Once it is established that a business is marital property and is eligible for division, a couple may have to make some difficult decisions. Some options include the following:

  • The couple continues to operate the company and work together.
  • The couple sells the company and divides the profits.
  • One spouse buys out another spouse's interests.

The right option will largely be based on whether or not the couple can remain amicable.

Valuing a family business

A key part to the entire process is to determine the worth of the business. Both spouses may want to hire their own appraisers to establish the company's value. The true value will have to take into account all the assets as well as all the liabilities. There may be intangible assets - such as patents and accounts receivables - that will come into play as well. Someone who specializes in business valuation should be hired in order to ensure that every detail has been accounted.

Even seemingly small family companies can present challenges for people going through a divorce in Utah. People who have concerns about this topic should contact Kristopher K. Greenwood & Associates.