3 Things to Know when Dividing a Family Business in Divorce

When you determine that your marriage includes irresolvable differences, you might make a decision that has both immediate and far-reaching implications. If you’re a parent or a family business owner, these implications may be complex, especially regarding finances. When you file for a divorce, it’s important to know how to protect your assets, particularly those associated with the business you’ve worked so hard to establish.

Iowa operates under equitable property division guidelines in divorce. This means that the court will split all marital assets between you and your ex in a fair division, although, perhaps, not 50/50. There are several things to keep in mind to make sure you receive a fair settlement on all property division issues, particularly those associated with your family business.

What Is the Current Market Value of Your Business?

This is a primary question that must have an answer before the judge overseeing your divorce can determine a fair division of business assets between you and your ex. To answer the question, a business valuation must take place. On an emotional level, you no doubt consider your business priceless.

However, for the purpose of determining its financial value in order to conduct property division proceedings in a divorce, you must subtract the total liabilities of your business from its assets. Anything of value that you can convert to cash, including equipment or inventory, counts as an asset. Additional factors come into play as well, such as the percentage of sales and revenue your company has generated in the past year.

A comparable company analysis can also help determine the value of your business, which is how the metrics of your company compare to others of similar size in the same industry.

Will One Spouse Buy out The Other in Business?

As you navigate divorce, you might want to buy out your ex’s shares in your family business or sell your shares to him or her. Various issues may be relevant to this option, including whether one spouse’s family started the business and wants succession to take place within the direct lineage of the family.

How involved each of you were in the business during the marriage is also a key factor of consideration for property division proceedings in your divorce. It wouldn’t make much sense for a spouse who had nothing to do with a business in marriage to want to take over ownership in a divorce.

Be Clear About Your Needs and Business-Related Goals

Family-run business issues in divorce can be complex and difficult to resolve, especially when spouses disagree on a particular topic. Full disclosure is required from both parties regarding assets and liabilities in order to achieve a fair settlement.

A concerned spouse who is preparing for property division proceedings in an Iowa court will want to be very clear about his or her immediate and long-term needs, as well as ultimate goals pertaining to the business in question or finances in general.