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How is a Family-Owned Business Divided in a Divorce?

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By Lonnie Nelson
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One of the most complex areas of property division in a divorce is determining how to value and distribute assets owned by a family business.

A forensic accountant can help a spouse determine the monetary value of a business to ensure that all marital assets are distributed fairly in a property settlement.

Prenuptial or Postnuptial Agreements

Divorces can have a huge impact on the financial stability of family-owned businesses. A well-drafted prenuptial or postnuptial agreement can help ensure that a family business stays in the right hands in the event of divorce.

The legal document can also protect assets that were acquired prior to the marriage, such as real estate, or those inherited from a deceased spouse. It can also establish how debts will be divided in a divorce and what rules apply to child custody or child support.

A prenuptial agreement can be enforceable only if it was signed voluntarily and fairly, and if each party had full disclosure of their assets and liabilities. Alternatively, an agreement may be considered unenforceable if it was a product of coercion or duress.

Buyouts

Getting a business through a divorce can be tricky. Ownership stakes and profit-sharing decisions play a role in equitable distribution, child support, and alimony.

One option is to sell the business and divide the proceeds of the sale. However, the process can take years.

Another solution is to buy out your spouse’s interest in the company. This can be done through cash payments or through a swap of marital assets of equivalent value.

If the spouse who is buying out has sufficient funds, this method can provide them with a good payout for their investment. On the other hand, if one spouse does not have enough money to pay for the business, this could be a difficult or costly option.

If you are considering a buyout of your spouse’s interest in the family business, make sure you consult an experienced Northern Virginia divorce attorney before doing so. This will help you make an informed decision about whether a buyout is the right option for you.

Separation of Business Assets

Business assets can be challenging to divide during a divorce. They can include things like property, bank accounts, stocks and retirement accounts. Often, this is done through the process of equitable distribution.

Some couples own a business together and have been working in it for many years. They may even have children who are involved in the family business.

If one or both of the spouses decides that the time is right to get a divorce, then the business will need to be divided.

In this situation, there are three methods that can be used to ensure a fair distribution of the business interest.

The first option is to sell the business and split the proceeds. However, this approach can take a lot of time and is not the best solution for everyone.

Retirement Accounts

Retirement accounts, including 401(k) plans, IRAs and pensions, can be a valuable asset to a family-owned business. However, dividing these assets during a divorce is a complicated process.

In many states, retirement earnings accrued during a marriage are considered marital property and subject to equitable division. This includes retirement savings acquired before the marriage (premarital) as well as any earned or accumulated value of these assets during the marriage.

Once a division is made, it can be distributed to each spouse according to the terms of a Qualified Domestic Relations Order (QDRO). The QDRO establishes each ex-spouse’s legal right to receive a specific percentage of the qualifying retirement plan’s balance or benefit payments and directs a retirement plan administrator to make payments accordingly.

Small businesses of all types have a wide variety of employee retirement plans, including traditional 401(k) plans, SIMPLE IRAs and Simplified Employee Pension (SEP) IRAs. Choosing the right retirement plan for your business and its owners is key to maximizing your business’s wealth in retirement.

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