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Should You Co-Own Your Family Business with Your Former Spouse?

Posted on in Property Division

Should You Co-Own Your Family Business with Your Former Spouse?Dividing a family business in a divorce is difficult if each spouse has equal ownership of the business. To include the business in the division of property, the spouses must:

  • Agree on who will own the business after the divorce;
  • Thoroughly assess the value of the business; and
  • Find other properties to award in exchange for the business.

Spouses can avoid these complications by choosing to remain co-owners of the business after their divorce. This is not a viable option for every divorce but can be mutually beneficial when spouses agree to it.

Valuation Process

Spouses immediately benefit during the divorce negotiations when they both keep ownership of the family business. They do not need to go through the long and complicated valuation process because they are not dividing the business. Neither spouse will have to give up valuable marital properties in exchange for total ownership of the business. The divorce agreement can presume that each spouse will receive equal value from the business as long as they are co-owners. Skipping the business valuation process saves time and money.

Cooperation

Divorcees may find the idea of continuing their business together to be an untenable situation. Spouses must determine whether they can still cooperate as business owners before deciding to share the business after a divorce. Factors may include:

  • Whether they can work together in an impersonal business relationship;
  • How often they will need to interact with each other as co-owners; and
  • Whether they trust each other to make independent business decisions.

Co-owners who cannot cooperate with each other will hurt their business. If spouses cannot separate their business and personal relationships, they should give complete ownership to one spouse during the divorce.

Future Sale

A divorcee who remains a co-owner in a business may choose to sell his or her business ownership a few years after the divorce. He or she may have realized that the business relationship was not working or found an opportunity for another business investment. However, there are potential tax consequences when a divorcee waits on selling his or her business ownership. The IRS does not tax a transfer of business ownership that occurs as part of a divorce. Someone who sells his or her ownership outside of divorce may need to pay taxes for the revenue he or she received from the sale. Spouses can include the terms of a potential ownership sale in their divorce in order to exempt a future sale from federal taxes.

Protecting Your Interests

It may be a rare scenario in which you and your former spouse can successfully co-own a business. Most likely, you will need to include the business in your division of property. A McHenry County divorce attorney at Botto Gilbert Lancaster, PC, can help you keep your business or receive equitable value for it. Schedule a free consultation by calling 815-338-3838.

Source:

https://www.forbes.com/sites/lawrencelight/2016/03/07/when-2-business-owners-divorce-what-to-do/#773f52e8343b

Illinois State Bar Association State Bar of Wisconsin Crystal Lake Chamber of Commerce Illinois Trial Lawyers Association McHenry County Bar Association
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