EP 158: Owning a Business with Your Spouse

This episode will cover the options you have if you own a business with your soon-to-be ex-spouse. Under normal circumstances, businesses are very complicated. When you are getting divorced, it is even harder. Because this is such a complicated topic, this episode will not be able to go in-depth, but we will cover the options that you have for dealing with your business in a divorce:

  1. One spouse buys out the other.
  2. Both spouses continue to work in the business together.
  3. Walk away from the business entirely.

This is one of the most common options in the divorce world. One person retains ownership in the business, and the other no longer has any ownership, but they receive money for the value of their share. For example, let’s say you and your spouse co-own a gym, and your spouse wants to buy you out. How will that work? In a perfect world, you know the value of the gym, and you know the value of your shares. If the gym is worth $100,000, and you own half, your spouse will write you a check for $50,000. What happens if your spouse isn’t able to pay you $50,000 right now? It will become more complicated.

They may offer to pay you $10,000 a year for the next five years. In that case, you may want to factor interest into the equation. You could also consider taking a portion of the profits each year. You may also be able to pull that $50,000 from another asset, like a retirement plan. There are options for how you structure a buyout. However, with most buyouts, it is difficult to determine exactly what the business is worth. There are experts who value businesses, but it is a somewhat subjective process.

This is not a very practical option. It can be difficult to continue to work with your ex-spouse. You may have to be around their new boyfriend or girlfriend. When work-related problems arise, the history that you have with them can amplify the conflict. This option is very difficult to execute, although people do sometimes attempt it.

You could sell the business or simply close up shop. There are a number of reasons to consider this option. If it is unfeasible to continue running the business, you may want to walk away. Owning a business can be a burden, and sometimes it is simpler to sell the business or close it.

What you decide will depend on what is best for you. Businesses are very complex. There are also legal considerations – is it an LLC, a C-Corp, an S-Corp? Who are the shareholders? What does your operating agreement say? What if investors or employees own part of the company? These are complicating factors that you will have to consider. You will need to understand the various considerations: taxes, employees, investors, etc. Make sure you handle all of these issues as cleanly as possible.

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