What to Do With a Business in Divorce


It’s common knowledge that entrepreneurship can be a daunting task and a large percentage of new businesses fail in the first five years. If you have built a business from scratch and it’s turned into a successful venture, you are probably very attached to the business. The business probably feels like your “baby” and your employees, like your second family. But now that you’re facing a divorce, what does that mean for your business?

If you’re like most business owners, your business probably provides some, if not all the income for your family. However, your business is more than an income source, for the purposes of divorce, it’s viewed as an asset, as “marital property,” unless you have a valid prenuptial agreement or postnuptial agreement that says your business shall remain separate property.

When a Business is ‘Community Property’

If you do not have a prenuptial or postnuptial agreement in place that says your business shall remain separate property, and you created the business after you got married, then your business is probably community property, which means it belongs to you and your spouse equally.

In these situations, it’s not uncommon for one spouse to put all the blood, sweat, and tears into a business while their spouse had little or nothing to do with the business, though they certainly enjoyed the financial rewards. But when it comes time to divorce and the uninvolved spouse learns how much the family business is worth, suddenly they become very interested and they want half.

There are all types of closely-held businesses. From professional practices to retail stores to online businesses to service-based businesses to restaurants and everything in between. While the products and services of businesses vary widely, there are three common ways to divide a business in a divorce:

  1. The spouses continue to own and operate the business after the divorce as co-owners.
  2. The couple sells the business and splits the proceeds.
  3. One spouse buys out the other spouse’s interest. If one spouse is truly tied to the business, a buyout is often in their best interests. There are options for the buyout. It can involve giving the selling spouse more equity in a home, a larger share of a retirement account, securities from an outside qualified plan, etc.

Regardless of the path the spouses take, it’s important that the business is properly valuated, which requires the services of a professional business appraiser. If you are trying to figure out what to do with your closely-held business in the divorce, we invite you to contact our Henderson divorce firm to schedule an initial consultation with a member of our legal team.

Next: 2019 Changes to Tax Treatment of Alimony

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