It is not easy to build a family business from the ground up. Whether you and your spouse started the company or it was in one of your families prior to your marriage, there is much at stake in the event of divorce.
When you are a business owner facing a divorce, you probably have a number of questions. Do you and your spouse have equal rights to the business? Is it possible for the business to remain successful if one of you is no longer an active partner? Are there other family stakeholders who are at risk because of your divorce?
The answers depend on your specific circumstances.
As a marital property state, Wisconsin law presumes an equal division of all assets that are part of the marital estate. So, the first step is to determine whether the business is in fact marital or separate property. In general, all property and assets acquired by one or both parties during the marriage is considered “marital property.” There can be exceptions made for property acquired by gift or inheritance. However, even if you inherited or were gifted a business, your spouse could try to argue that he or she was integral to business operations and success, and is therefore entitled to a portion of the value of the business. Your family law attorney can help you understand whether the value of your business will be considered in the division of assets in your case.
If the business is to be considered in the division of marital property, you need to determine the accurate value of it before proceeding with the property division process. In Wisconsin, you and your spouse have the option to agree on an expert to value your business, but if you fail to do so the court can select an expert.
Once a value is determined by an expert or is agreed upon between the parties, you can use that information to negotiate or litigate final property division terms. If you or your spouse disagree with the expert’s assessment and cannot agree upon value, you may choose to hire your own expert to value the business.
What Are Your Options To Divide The Business?
Once the value of your business is agreed upon, you then have to determine how to handle the business as part of the overall division of property.
Your options may include:
- Selling the business and splitting the profits and/or liabilities.
- Buying your spouse out if continuing to run the business on your own is a viable option.
- Taking a buyout from your spouse if you do not want to remain active in running the business.
- Remaining business partners after divorce. This option would be extremely difficult as it would be very challenging for most divorced couples to effectively run a business together and would likely require further business and operating agreements defining the post-divorce business relationship.
If you do decide to remain business partners, it would be critical to clearly define what roles each party will have and to formalize your agreement in a legal contract. This would require the involvement of business and tax professionals in addition to divorce attorneys. However, by defining your roles up front, you will reduce points of conflicts and prevent legal disputes later.
Dividing business assets may be the most complex part of your divorce. It is important to get it right. The lawyers of Nelson, Krueger & Millenbach, LLC have significant experience working with business valuators and other experts to protect our clients’ interests.