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5 main factors when divorcing spouses own a business together

On Behalf of | Nov 20, 2023 | Divorce |

Some spouses who decide to end their marital union in Delaware share ownership of a business. In these cases, the complexities of divorce can take on an added layer of intricacy.

Dissolving a marriage that involves joint entrepreneurship demands careful attention to several factors.

1. Business valuation

One of the primary challenges for divorcing spouses with a shared business is determining the value of the enterprise. Delaware follows the equitable distribution principle, meaning a fair division of assets acquired during the marriage.

In the case of a jointly owned business, the fair market value becomes an important factor in the asset division process. A professional business appraiser is often necessary to ascertain an accurate valuation that both parties can accept.

2. Operating agreements and corporate structure

The business structure and any existing operating agreements matter a great deal in the divorce proceedings. Delaware allows various business structures, such as LLCs, corporations and partnerships.

The chosen structure can significantly impact the division of assets. The parties should review any existing agreements, such as buy-sell agreements or partnership agreements, to determine how they address ownership changes due to divorce.

3. Income and tax implications

The financial implications of divorce extend beyond asset division. Income generated from the business plays a role in determining alimony and child support, if applicable. Additionally, Delaware has specific tax laws that may impact the division of assets and any future income from the business.

4. Continuity of operations

Delaware has 27,111 small businesses. If owners of these businesses divorce, they must decide the fate of their jointly owned business. Options include one party buying out the other, selling the business and splitting the proceeds or continuing joint ownership with a clear agreement on management and decision-making. Planning for the future of the business helps ensure its continued success and the financial well-being of both parties.

5. Intellectual property and client relationships

Intellectual property or strong client relationships play a huge role in many businesses. Safeguarding these assets during divorce is important. Delaware recognizes the value of intellectual property and may take it into account during asset distribution.

Divorcing spouses in Delaware with joint business ownership face unique challenges. Navigating these factors with diligence and foresight helps a fair and equitable resolution.