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How To Handle A Co-Owned Family Business In A Divorce

You and your spouse own a business together. The business is doing well (or perhaps not so well), but, unfortunately, your marriage is about to dissolve and you are getting divorced. Along with all the other issues involved, you and your spouse have to decide what to do with your co-owned business.

In general terms, there are three different ways to determine what to do with your co-owned family business in a divorce.

#1: Continue to own the business together. Believe it not, many divorcing couples will continue to co-own their business after the divorce. Of course, this means that the divorcing couples must put aside any personal animosity to the side, and be able to work together to make the business successful.

The benefits of continuing to co-own the business are as follows:

  • You both probably put a lot of work and effort in the business, and neither party wants to give up their share. By continuing to co-own, neither party has to give up, what they worked so hard to see succeed.
  • You both get to keep the income generated from the business.
  • There is no need to spend money on valuing the business.
  • It may force you to re-evaluate your roles in the business.

Of course, there are a few negatives in continuing to co-own the business, after the divorce, they are:

  • If you have children, any disagreements about the children may spill over into your business decisions.
  • You will still be in close contact with your ex-spouse. This may be too much to bear.
    You will need to maintain a good working relationship with your ex-spouse.

#2: Buy-out your ex-spouse’s half of the business. In New York, whether it is a house, a car, or any other type of asset, a co-owned business is treated the same way, it is divided “equitably” (meaning fairly). This typically, but not always, means, that each party is entitled to 50% of the value of the asset, and in this case, 50% of the value of the business.

In order to buy-out your ex-spouse’s half of the business, the first thing that will have to happen is to obtain a valuation of the business. This will require hiring a business appraiser. There are a few companies that specialize in valuation of businesses. Their fees can range from a few thousand dollars to over twenty-thousand dollars.

Once the business is valued, then one person can buy-out the other person’s half of that business. If the parties can’t agree on which party will buy-out the other party, the Court will most likely order you to sell the business.

#3: Sell the business. The easiest option, is probably to sell the business. This avoids the issue of working together, and also avoids the issue of which spouse gets to keep the business. You may still want to obtain a business appraiser to value the business, this way you will know what is the actual worth of the business and what you should sell it for.

If you do sell the business, it is important that you also have a limited non-compete and limited non-solicitation agreement. A limited non-compete means that you both can’t open the same or similar type business in the same geographical area. For example, if you both co-owned an ice cream shop, the limited non-compete may state that neither party may subsequently own an ice cream store in the same town.

A limited non-solicitation agreement means that you both can’t solicit the same clients that you previously had. For example, if you both co-owned a tax preparation business, then you may want to evenly split up the existing clients of that business, and prevent the other party from soliciting or using those existing clients.

If you co-own a family business, or any type of business, and you are thinking of getting a divorce (or you are in the middle of a divorce), it is important to hire an attorney that understands your particular situation. David Badanes and the Badanes Law Office, P.C., have represented numerous clients who own a business and can help you.

Contact David Badanes and the Badanes Law Office, P.C. at: 631-239-1702, email at david@dbnylaw.com or visit our web site: www.dbnylaw.com. The Badanes Law Office has offices in Northport and Uniondale.

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