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Considerations when dividing business assets in divorce

On Behalf of | Apr 27, 2022 | Divorce

When couples get divorced in Texas, they should realize that they won’t get everything they want in the final settlement. Despite this reality, you should not let that stop you from getting everything you need, especially when a valuable family business is at the center of negotiations.

Addressing needs to benefit your business

When couples split, they can rarely work together in their family-owned business afterward, leading to a division of company assets in the divorce settlement. Essentially, the company has a say in the divorce proceedings. When dividing company assets fairly, remember the following points:

• The spouse receiving the assets needs to sign a release of claims from the business.

• If you are the one transferring the assets, seek indemnity for the business from third-party creditors or others following the divorce.

• The business may issue a K-1 tax document in the year following the divorce that states the company does not have any “phantom income.”

• The receiving spouse needs to ensure that there is no holdback of any assets.

Another conundrum occurs when the business is highly valued, but neither spouse has sufficient funds to pay the other for a fair share of the company. In situations like these, spouses need to be creative in their divorce negotiations. You can agree on a time in the future to divide the assets. When you agree to this solution, the business valuation formula will date from the time the call option was put on the table.

Finding the right divorce solution

Negotiation and mediation are key to finding creative solutions when splitting assets in divorce. Working with a third party and taking your time to determine what is fair for both spouses as well as your business is crucial in protecting your interests.

Diving headlong and signing an agreement before you are ready can prove costly for yourself and the future health of your business. The goal is to find a win-win situation for all involved parties.