Divorce, property division and business ownership

On Behalf of | Jan 9, 2020 | Firm News |

The end of a marriage is a painful, emotional time, but the actual process of divorce itself is largely about money. In many divorces, especially those where the spouses do not have young children, the division of property is the most technically challenging and time-consuming aspect of the case. The parties have to reach a settlement that meets the requirements of fairness under Iowa law, and that leaves each party with the resources they need to get started on the next chapter in their lives.

Property division is rarely easy, but it can be especially difficult in cases where a family-owned business is involved. If the business is part of the marital property, it must be divided between the parties. The three most common ways parties achieve this are: (1) One ex-spouse buys out the other’s share; (2) The parties sell the business and divide the proceeds; and (3) The ex-spouses continue as co-owners of the business even after the marriage ends.

Before taking any of these paths, it is important to know the value of the business. In a divorce where the parties are business owners, the parties typically hire experts to analyze the business in order to determine its fair market value. This lets them set a fair price if they seek to sell the business, or to have one spouse buy out the other’s share.

Note that when one spouse buys out the other’s share, it is not treated as a sale for tax purposes. However, they must complete the buyout within a certain period of time.

Often, the toughest obstacle in a buyout plan is the cost. After the rest of the property has been divided, one party often doesn’t have enough liquid assets to buy out the other’s share. However, they can often secure financing from banks and other lenders.

The process gets more complex if the parties are not the only owners of the business. For example, they may be co-owners with other family members or business partners. In family-owned business cases, it can be especially important to have help from a lawyer who is sensitive to the family dynamics of the situation. It may be important to have separate legal representation for other family members, or for the business itself.

A divorce in a family business can also raise important issues for estate planning. People going through a divorce where a family business is involved should discuss their situation with attorneys who have experience not only in family law, but in business law and estate planning, as well.