Starting a new business can be an exciting venture. However, few people consider the consequences divorce can have on business assets. Do you know your rights? Do you know how the court will value your business?
This article will help you understand how business assets are distributed during divorce and circumstances that could impact the court’s decision.
Every divorcing couple must go through the painstaking task of dividing up a household. However, when a business is involved, a thorough examination of finances and fair distribution of business assets adds to the stress.
Under Rhode Island divorce laws, all assets created during the marraige are considered marital assets. However, assets received by gift or inheritance may not be divisible if they retained their independent identity throughout the marriage.
Even pre-marital assets may be subject to division, however, the Courts will only consider the increase in value of the asset from the time of marriage until the time of divorce.
Unless your business assets are divided in a pre-or post-nuptial agreement, they are subject to equitable distribution. This means assets will be divided fairly but not necessarily equally.
Valuing Your Business
Before the distribution of assets can take place, the courts first require you to value the business. This can be a complicated task and often requires the expertise of a financial advisor.
Numerous aspects are taken into account to reach a comprehensive appraisal, such as business income vs. expenses, financial accounts, real estate, inventory, debt, and employee expenses. The unique details of your business will determine how financial experts reach their final assessment.
Diving Your Business
There are several methods for dividing a business and its assets. When divorcing couples cannot agree on which method is best for both parties, they can argue their cases in court to have a judge divide business assets.
Couples wanting a complete split from their ex may choose one of the following division options.
1. Sell the business and divide the remaining assets. This option is favorable when neither party wishes to continue running the business.
2. Buyout your spouse’s portion of the business. This option is favorable when one spouse wants to continue running the business, and the other wants out.
3. In the event one spouse wants to continue the business but cannot afford a buyout, the selling spouse can sell to a third party.
There is one more option for couples who both wish to maintain business operations: to share the business. This can be difficult to navigate and it is recommended each party’s duties and responsibilities are outlined in a contractual agreement.
In some cases, additional circumstances may come into play when dividing a business during divorce. For example, the extent of each spouse’s involvement in the daily operations of the business or role in growing the company’s earnings.
The contribution of debt by either spouse as well as incomes, assets, needs, and future employment prospects will also play a role in the court’s decision when dividing business assets.
Just like every business is different, so is every divorce. If you are concerned about what will happen to your business in divorce, contact our office today. We can help you pursue an equitable division of your business assets.