Business owners often face difficult decisions when they decide to end their marriage. Unfortunately, protecting their business from a divorce is often the last thing people think to do when they're getting married or starting a business.
If you have not established a prenuptial or business agreement that outlines how your business will be divided in the event of a divorce, your spouse may be entitled to a portion of the company. In Kentucky, the courts divide a business in a manner that is fair to both parties. Here are three options that a judge will consider as a fair division of business ownership in a divorce.
A buyout of the other spouse's interest
A buyout is typically the most effective option for business owners with the means to do so. If the spouse buying the business does not have sufficient assets up front, there are other options to buy out the selling spouse:
1. Another asset can offset the selling spouse's portion of the business.
2. The buying spouse can compromise on other monetary benefits such as home equity or retirement funds.
3. An insurance plan can cover the cost of buying out the selling spouse's share without requiring the selling spouse to liquidate their assets.
4. A property settlement note or structured settlement acts as a loan with interest, a principal and a term in which to pay it back.
Selling the business and dividing the profits
Sometimes both parties prefer to move on with separate profits to use to for future investments. If selling the business, divorcing couples should be prepared to wait the unpredictable amount of time it takes to find a buyer. This may not be the best option for couples who need an immediate resolution.
Running the business through co-ownership
For some couples, running the business together is simply not an option. It may be a good option if you and your spouse have an amicable relationship following the divorce and a high a degree of trust in one another's business skills. If not, hostility can affect you on a personal level and, most likely, impact the business. This is not a good option following a difficult break up.
The goal is for all parties to walk away with a fresh start. The best method to resolve disputes during a divorce is to keep a logical mindset and to avoid making hurried decisions based on negative emotions. It can also be helpful to seek support from a neutral third party in order to maintain a productive direction throughout the process.