Divorcing couples have multiple options to divide the family business and its assets, so each party must weigh their needs and intentions to decide the best course of action. Divorce lawyers often help their clients with this process, giving them insight into the best way to tackle this challenging problem. Here are three options people can consider when deciding how to divide a family business.
1. The Business Goes to One Spouse
Even in a family business, couples often find that one spouse is more heavily vested in seeing the business succeed. In these cases, it may make sense to allow that person to buy out the departing spouse’s interest based on the business’s appraised value. This option helps protect both parties from taxes as well because the transfer of property in a divorce is usually not a taxable event.
If the party who is keeping the business does not have sufficient assets to purchase it outright, the divorce proceedings can include a settlement note. This allows the acquiring spouse to pay off the other party’s interests over time. If the spouses own shares, the company can buy back the departing spouse’s shares.
2. Both Spouses Continue Ownership
This generally works well financially, but it can sometimes be difficult for divorcing spouses to remain business partners. Through mediation with the help of divorce lawyers, couples can determine whether or not the spouses can remain involved and work together amicably.
3. Both Spouses Sell the Business
Sometimes, the heated debates that are common in divorce make sharing a business impossible. In these cases, it may make sense for both spouses to sell the business. After the sale, the parties typically split the proceeds equally and are free to pursue their own interests. This approach can take a while. Until the business sells, the divorce remains unsettled, so this may not work if one party is looking for a quick divorce.
There are multiple options to consider when dividing a business during divorce. Many couples enlist the help of divorce lawyers to help them determine which option is best for their financial future. If the divorcing spouses are unable to work out an agreement on their own or through mediation, Illinois courts will apply the relevant rules to determine ownership rights to the business and distribute property between the spouses.