What Happens to the Family-Owned Business in a Divorce?

Look around any community and you will likely see many family-owned businesses. These businesses are often the heart of communities, not only providing services to the people who live there, but also play a pivotal role in the community’s economy, providing jobs and other revenue sources. According to national statistics, almost 90 percent of businesses in this country are family-owned.

But what happens to those businesses when the owners make the decision to divorce? Do the assets of the business become part of the marital estate and how are they divided? Divorces involving family-owned businesses can be complex and require the assistance of a skilled Bloomington, IL family divorce lawyer to ensure that all parties are protected. It can also make a difference in whether or not the business survives and thrives in the aftermath of the divorce.

Property and Asset Division in a Divorce

Each state has its own laws when it comes to how the marital estate will be divided in a divorce. Some states have community property laws, meaning that all assets and property that is determined to be part of the marital estate will be divided equally between the two spouses.

Other states use the equitable distribution method. This means that each spouse will receive an equitable share of the marital estate, although the dollar amount may not necessarily be the exact amount for each as it is in community property states. Your divorce attorney can explain to you how the asset division laws in your state work and how it will apply to your situation.

Family-Owned Business

In most cases, the business is probably the largest asset the divorcing couple own, however, the assets themselves are likely not liquid assets, which means that it may not be easy to divide. The value of the business is not necessarily in the money it has in the bank but is instead in the inventory, equipment, accounts receivables, and other factors that make up the business itself.

In order to divide the business, it is often necessary to sell it to another party in order for the proceeds to be placed in the marital estate in order to be divided. This is true whether the state the couple lives in is a community property or equitable division.

There may be ways to avoid the selling of the business. One option is for one of the spouses to buy the other spouse’s share of the business. This can be done by using other areas of the marital estate that needs to be distributed or divided between the two of them.

For example, the couple may have retirement accounts, real estate, stocks, and other financial accounts that could be used towards the buyout price. If the couple does not have enough assets in their marital estate to cover the price, then using a property settlement note may be another option.

A property settlement note is a deferred payment of property value. These are commonly used in divorce when one spouse will be awarded sole ownership of the family home. The property settlement note allows the spouse some time to remortgage or pursue other options in order to pay the other spouse their share of the equity in the home. If the spouse uses a property settlement note as payment for the business, then there is usually interest calculated into the total amount, as well.

 


 

Thank you to our friends and contributors at Pioletti & Pioletti Attorneys at Law for the insight into divorce laws.