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Common questions about business buyouts in divorce

by | May 27, 2019 | Uncategorized

Asset division during a divorce can be a heated process. The situation may grow even more complicated if you have a business involved.

Whether your partner has a documented interest in the company or not, Massachusetts law considers any business a marital asset. Sometimes the most appropriate solution is to buy out your ex’s legal share and continue on your own.

Is a buyout the only option?

If you and your partner are divorcing on neutral terms, you may wish to continue running the business together. However, in most cases, it can be a challenge to adapt to this new professional relationship, and tension can be high.

Another possibility is to sell the business entirely and then divide the proceeds. Unfortunately, economic peaks and valleys can make this process difficult. You may lose a substantial amount of money or you might even struggle to find the appropriate person to take the company over. Many owners also hate to lose a business they built from the ground up.

Considering these options, a buyout is typically the best course of action. It keeps your business in the family while giving proper closure to the broken relationship.

How much will you have to pay?

When the courts divide your assets, it is very important that the value of the business be accurate. Typically, an expert determines the worth of your company as of the date of divorce. In 50/50 asset division, this means that you would pay your former spouse half of this valuation to complete the buyout.

Because Massachusetts follows the laws of equitable distribution, sometimes the split is not 50/50. It would depend on your specific circumstances.

What if you do not have the cash?

Assuming the valuation of the business comes in very high, it can take a large amount of capital to buy out your former partner. You may opt to liquidate other assets, such as the family home or vehicle and give your share as payment. If this option is not desirable, you could pay it back in the form of a loan. Keep in mind, however, that this route comes with interest and you will likely need to provide collateral.

Divorce is never easy, and your business could suffer from the chaos of uncertain ownership. The key is to establish the plan during divorce negotiations so that your company can stay on track.