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How to divide a business during a divorce

On Behalf of | Sep 6, 2022 | Firm News |

Dividing up assets during a divorce is hard enough, but things can become even more complicated when the couple owns a business together. There are various options when it comes to figuring out what to do about the business, and they depend on factors such as how involved each partner is in day-to-day operations, the ability of each partner to buy out the other and if the partners get along.

Before making any big decisions about business division, however, the couple must determine the value of the company.

Valuation approaches

The Market Business News discusses the three common ways to value a business. These include:

  • Market approach: Looks at sales amounts of similar businesses in the area
  • Asset approach: Subtracts liabilities from assets
  • Income approach: Predicts future profits of the business based on past and current profits/cash flow

Depending on the complexity of the business and how long it has been operating, financial professionals may combine approaches to determine the actual value.

Common options for dividing the business

Once there is a determination of the business’s value, the divorcing couple can decide what to do with the business. In many cases, neither partner has the cash or assets to buy the other one’s shares. If this is the situation, the couple will try to find a new buyer and divide the sales profit appropriately.

If one is able to purchase the other partner’s shares, this is an option. It helps if one partner is not passionate about the business or does not take part in the daily operations.

Another option is to keep the business and remain partners, but this generally only works if the couple is able to communicate, and there is respect and trust between them. There are also creative ways in which the partners do not need to work together on a regular basis or in the same manner.