When I take on a new divorce client, one question that I like to ask them is whether they have talked to their spouse about a marital settlement agreement. For family business owners especially, the answer to this question can determine whether the divorce process is contentious.
This video explains how spouses must decide what happens to the business.
As my video lays out, your family business is an asset like anything else if you started it during your marriage. No matter what, you and your spouse are going to have to divide it between yourselves. Will you decide to divide the business through a buyout or by selling it and splitting the proceeds?
Here’s what you need to know to get started.
What Is a Marital Settlement Agreement?
First, let’s talk about what an MSA is and does. In essence, this document is a contract between you and your spouse that details the terms of your divorce. It shows how you plan to split your marital assets and debts, the particulars of any alimony arrangements, and child support and parenting plan details, if applicable.
To Buy Out the other Spouse or Sell and Split the Proceeds?
As a business owner going through a divorce, you will need to decide how to divide the business. Either one spouse will need to buy out the other, or you will have to sell the business and split the proceeds (remaining co-owners after divorce is an option, but it is rarely a good option).
Both options have benefits and drawbacks.
To begin, you must determine your business’s value. Your attorney should have a network of financial professionals to help you through this part of the process.
The buyout option is the most popular method for dividing a business in a divorce, most likely because of the tax benefits. However, if you don’t have enough cash on hand to make the purchase, you may have to sell the business.
Selling the business and splitting the profits with your spouse is the next option. Depending on market conditions and the willingness of each spouse to sell, the sale of a business can be incredibly challenging. Not only could you lose money in the deal, but also you might have to continue running the business until you can finalize a sale. You will also need to determine as part of your marital settlement agreement how you plan to continue running the business while you try to find a buyer.
Why You Need an Attorney
Even in divorces that are amicable, both spouses should hire an attorney to review their settlement agreement before signing it. Your attorney can explain the complex legal language to you in a way that helps you make the best decision possible, which could save you thousands in litigation fees later.
If you need help deciding how to handle your family business in your divorce, don’t hesitate to set up an appointment with me.
About the Author: Helena Y. Farber is an attorney in Aventura, Florida, whose practice is concentrated in the areas of divorce and family law. She can be reached at (305) 520-9205 or via email athyf@farberlawpa.com.
Disclaimer: The attorney makes this Blog available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site, you understand that there is no attorney-client relationship between you and the Blog. The Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.