Divorce is never easy, but it becomes even more complicated when a business is involved. Whether you and your spouse built the business together or one of you was more heavily involved, the division of a co-owned business during divorce requires careful planning and legal expertise. At Foxtrot Family Law, we understand the challenges that come with business ownership during divorce, and we’re here to help Alabama families protect their financial futures.
In this blog, we’ll explore the options available when dealing with a co-owned business during divorce, including business valuation, buyouts, and the possibility of continuing to co-own and operate the business.
What Does Business Co-Ownership Mean in a Divorce?
Business co-ownership in a divorce means that both spouses have a stake in the business, whether it’s reflected in legal documents or not. The division of that ownership during a divorce can be complicated, as the court will look beyond just the ownership percentage on paper. They will also consider factors such as:
- Sweat Equity: Has one spouse been heavily involved in the day-to-day operations of the business, contributing time, effort, and expertise? Sweat equity plays a significant role in determining how a business is divided.
- Financial Contributions: Did one spouse provide the initial funding or contribute financially to the business, even if they weren’t involved in its daily operations?
- Family Investments: In some cases, a business may have been funded by one spouse’s family money, which can complicate the division process.
In Alabama, the court takes these factors into account to ensure that the division of the business is fair and equitable. This means that even if one spouse owns a majority of the business on paper, the other spouse’s contributions—whether financial or otherwise—will be considered.
Options for Handling a Co-Owned Business in Divorce
When it comes to dividing a co-owned business in a divorce, several options are available depending on the specific circumstances of the business and the preferences of both parties.
1. Continue Co-Owning the Business
While it may seem unlikely, some couples choose to continue co-owning and co-operating the business even after divorce. This option may be particularly appealing if both parties have invested significant time, money, and effort into building the business and want to see it continue to thrive.
In larger companies, this type of arrangement is not uncommon. For example, Jeff Bezos’ former spouse, MacKenzie Scott, retained a large percentage of Amazon stock after their divorce, maintaining a stake in the company without being involved in its operations. While most divorcing couples aren’t dealing with businesses the size of Amazon, the principle remains the same—co-ownership can be an option when both parties believe it’s in their best interest.
2. Buyout the Other Party’s Interest
In many cases, one spouse may want to retain full ownership of the business after the divorce. This can be achieved through a buyout, where the purchasing spouse buys the other spouse’s interest in the business. The buyout can be negotiated based on the value of the business and the percentage each spouse is entitled to.
To determine the buyout amount, the business will need to be professionally valued. This process involves evaluating the business’s assets, liabilities, and earning potential. Once a value is established, the buying spouse can either make a lump-sum payment or negotiate a structured settlement to buy out the other party’s interest.
3. Sell the Business and Divide the Proceeds
If both parties agree that co-owning the business is not feasible and neither spouse wants to buy out the other, selling the business and dividing the proceeds is another option. This process is similar to selling a jointly-owned home—once the business is sold, the spouses divide the proceeds according to their agreed-upon or court-determined shares.
This option may be the cleanest break for some couples, allowing both parties to move on without being tied to the business. However, it’s important to remember that selling a business can take time, and finding the right buyer may require patience.
Working with Professionals to Protect Your Business
High-net-worth divorces and complex financial arrangements often require the involvement of a team of professionals. At Foxtrot Family Law, we collaborate with CPAs, business lawyers, and financial advisors to ensure that every aspect of your business is considered during the divorce process.
Our role as your family law attorney is to guide you through the legal challenges while your financial team handles the valuation, tax implications, and business management decisions. Together, we work to protect your legacy and ensure that your business remains a valuable asset, whether you decide to retain ownership or sell.
Frequently Asked Questions
- How is the value of a co-owned business determined in a divorce?
The value of a co-owned business is typically determined through a professional valuation, which assesses the business’s assets, liabilities, and earning potential. A business appraiser or financial expert may be brought in to provide an accurate valuation. - Can we continue to run the business together after divorce?
Yes, continuing to co-own and co-operate the business is an option for some divorcing couples. This arrangement may work well if both parties have a vested interest in the success of the business and can maintain a professional relationship. - What if I funded the business, but my spouse ran it?
If one spouse provided the funding while the other handled day-to-day operations, both contributions will be considered during the division process. The court will evaluate financial investments and sweat equity to ensure a fair outcome.
Protecting Your Business and Your Future
Divorce doesn’t have to mean the end of your business. With the right legal guidance and a team of professionals by your side, you can navigate the complexities of co-ownership, business valuation, and asset division while protecting what you’ve worked so hard to build.
At Foxtrot Family Law, we’re committed to helping you secure the best possible outcome for your business and your family. Whether you’re considering a buyout, selling the business, or continuing to co-own, we’re here to provide the support and legal advice you need to make informed decisions.
Ready to take the next step? Contact Foxtrot Family Law at thinkfoxtrot.com or call us at 256-464-1878 to schedule your consultation today.
