Dividing a private, small business in divorce
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Dividing a private, small business in divorce

On Behalf of | Aug 10, 2020 | Family Law/Divorce

Far more goes into creating and running a small business than most people realize. Any owner can attest to this. That’s why a private business often becomes a family affair, with spouses both involved in or supporting the operation.

In the event of a divorce, this arrangement often becomes unsustainable. A small, private business – either all of it, or the relevant portion of increased value it experienced – is likely to be considered marital property under North Carolina law. This would mean it is subject to the same property division process as other shared assets.

The first hurdle: Valuation

A business’ worth is frequently a “major source of disagreement” during a divorce, the American Bar Association explains. This is because putting a dollar figure on an entity that is constantly shifting, evolving and growing is a significant undertaking – particularly when there are no publicly traded stocks that may serve as a starting point.

Landing on a satisfactory number usually involves a review of the business’ assets, its income figures or its place in the market. All of this must then be placed in the context of the marriage and each spouse’s interest in said business. Parties usually bring in an expert to help with this piece of the puzzle. Spouses that disagree on an independent valuation may decide to hire their own analyst.

While complex, this is a necessary prerequisite to the actual matter of property division if you want to ensure a fair final decision.

3 options for dividing the business

After a business’ value is determined, the separating partners must choose the appropriate way to divide this asset. There are generally three common approaches:

  • One spouse takes full ownership by compensating the other for their share
  • The couple agrees to sell the business and split the proceeds
  • Both spouses continue to own the business together despite the change in their personal lives

The first approach is generally used the most, particularly if one spouse wants to remain significantly involved in the business and the other does not. However, there are certain circumstances in which the other two options are sensible.

There are a lot of opportunities for things to go wrong during property distribution, particularly when significant business interests are involved. With a creative approach that is backed by a strong valuation, this matter can be resolved. How that ultimately happens is something you can help dictate.