Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.
Divorce can disrupt so much more than a marriage. It can disrupt your intimate relationship and even your professional relationships. Some married couples are also business partners. This can create a question about how to move forward. Do you sell your stake, stay in business together, or dissolve the business entirely? Before you decide, you should review your individual situation and take steps to ensure that you do not get into conflict with your divorcing spouse.
There are many ways in which you may be in business with your spouse. You may jointly own property investments, you could co-own a privately held limited liability company, head up a publicly held company, run a non-profit or co-own a private limited practice, like a Law Firm or Dental practice. Each of these businesses has specific tax implications and may have different operating agreements which can affect how you proceed when you want to divide assets in a divorce.
When you are dividing your business in divorce mediation you may want to ask any of the following questions to help you decide what to do:
Was the Business Set up Before or After the Marriage?
If one of the partners set up the business before the marriage, the business will not be split down the middle, since the value of the business before the marriage is not defined as part of the community property. If one spouse became a business partner after the marriage, you will have to work out what portion of the business should be split with the divorcing spouse, excluding the business’s value before marriage.
A divorce mediator who is skilled in business valuations can help you value the business and offer suggestions for how to divide it equitably in a way that reflects each spouse’s contribution. If you started the business together after marriage, the calculation is more simple, but even then you may have had different roles and contributions that you will need to put a value on.
Was it an Inherited Business?
If the business was inherited by own spouse, it is technically not defined as marital property in California. In reality, many spouses become involved in a family business, sometimes in unofficial roles. These situations sometimes cause conflict and resentment. To avoid conflict, it’s important to put a value on everyone’s contributions, even if these roles were not clearly defined at the time. An inherited business could become part of the community property assessment if a spouse is involved in the running of the business and/or money from the business is used in the marriage, or the business is funded with money from the marriage.
What Type of Business Is It?
There are many different business structures and these have different tax impacts on the business partners, investors and shareholders. Many people involved in private business structures are taxed directly on their personal tax returns. Depending on the number of partners in the business, dividing up a business could mean a bigger tax hit on whoever wants to retain control of the business. Some corporations and businesses will also have tax exemptions, and non-profit businesses will be tax exempt. This needs to be part of the calculation of how much a share of the business is worth to a spouse who buys or sells their share.
If the business is a publicly traded company, it could be a matter of deciding what stake divorcing spouses retain in the company. It might be easier for an ex spouse to hold on to a stake in a publicly traded company without having a controlling interest, unlike in a business partnership, where you and your spouse have an equal stake and both of you are decision-makers. One well known example is the divorce of Jeff Bezos and MacKenzie Scott. Since most of their wealth was tied up in Amazon, the divorce settlement gave MacKenzie Scott a percentage of Amazon shares which made her the world’s richest woman, but didn’t conflict with Jeff Bezos’s controlling interest.
What About Debts and Liabilities?
Every business owner will have some debts and liabilities. When you are getting a California divorce, the community property is split in half. This includes your debts as well as your assets. The advantage of divorce mediation is that you can decide how to trade these debts and liabilities for other assets that are part of the marital property. If you went to court you might be subject to a court’s decision about whether you should sell the business and split the debts and proceeds.
Do my Soon to be Ex Spouse and I Get Along?
If you are getting a divorce but you don’t want to dissolve your business, you may be thinking of continuing to work together as business partners. For many business owners, their business is a passion project in which they have invested time, energy and money. An example of a business that survived divorce is The Gates Foundation. Bill and Melinda Gates committed to running the business after divorce, with the option to wind down the business after a period of time.
Arrangements to stay in business with your ex-spouse need to be approached with sensitivity and care. If you choose to remain in business together, managing conflict and expectations is key. You may also need to manage relationships with other business partners who could be concerned about the impact of conflict on the business. If you want to continue working together for a fixed period and then go your separate ways, this is also an option. Some business partners might want to wrap up a project they have been working on before they leave the business. Every couple is different, but with careful agreements and civility towards your spouse you can carry on being business partners.
Our Services and How We Can Help
We are highly skilled financially trained West Coast mediators who can assist divorcing couples with questions about business valuation, business buyouts and the future of an organization. We can help you work through the process of dividing your business or deciding on a future as business partners after divorce.
Each divorce is different, and with complex assets like a shared business there will be unique questions to answer. We empower divorcing spouses to envisage the overall divorce settlement as an impactful business deal with many future positive potentials.
To find out more about our full service divorce mediation services, including in-house business valuations and more, please contact our team of West Coast divorce mediators who work with those getting a divorce in Berkeley, CA, San Diego, CA, Silicon Valley and nationally.
