Starting a new business can be an exciting venture. However, few people consider the consequences a divorce can have on business assets and debts. Do you know your rights? Do you know how the court will value your business? Do you have any idea what will happen to the business assets and debts?
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 and debts adds to the stress.
Under Rhode Island divorce laws, all assets are created or acquired during the marriage are considered marital assets. 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. Even if a business was created prior to your marriage, a portion of it may be subject to division by the Court.
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. Usually, if the value supports it, the parties will hire expert business appraisers.
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.
Dividing 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 and a judge will choose how to your divide business asset.
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 want’s 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. However, you must be cautious so as to insure the sale is an arm’s length transaction.
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 almost never recommended. If clients decide to do this, each party’s duties and responsibilities are outlined in a strict 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.