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What happens to the family business when owners divorce?

You and your spouse may have spent years together as business partners cultivating a lucrative and rewarding enterprise. However, your marriage may not have been as successful as your business, and you may find yourself seeking a divorce. When a married couple in Utah has a business together, they have several options for what to do with the business post-divorce.

A buy-out

One option is for one spouse to keep the business and buy out their ex’s share in it. According to the American Bar Association, this is the most popular option that divorcing business partners choose.

If this is handled as the transfer of property incident to divorce, it may be a tax-free non-recognition event. To qualify, the divorce decree must require the transfer and the transfer must happen within six years of the divorce.

Also, to complete a buy-out the spouse keeping the business must have enough cash or liquid assets to buy out their ex. If not, the spouse keeping the business may seek a loan to finance the buy-out.

Selling the business

If a buy-out is not possible or wanted by both spouses, and if the spouses simply want a clean split from one another, they may choose to sell their business and divide the proceeds. However, there are issues that will arise when selling a business. First, a buyer must be found which could take years. Couples will have to agree on a sale price as well. Finally, spouses will need to agree on how to run the business until the sale is final.

Stay on as co-owners

A more unusual option that may work for some is for both spouses to remain co-owners of the business, and keep operations running as usual. This may work if the spouses can cooperate with one another and communicate effectively, and neither wants to bow out of the business. If spouses choose to stay on as co-owners, they will have to delineate what their specific roles in the business will be, to avoid conflict. This can be done in a formal written agreement.

Seek help with property division and the family business

If you and your spouse own a business together, it may be the most valuable asset you own. This makes the property division process more complex, as spouses will need to determine what is best for their business and what is best for them as individuals. Those in Utah who want to learn more about dividing the family business in a divorce can consult with a family law attorney for further information.

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