Trusted, Effective
Divorce And Family Law Representation

Dividing a small business in divorce

On Behalf of | Mar 27, 2020 | Family Law

If you are facing a high-asset divorce in New Jersey, it is important to consider what is most important to you when it comes to property division. Many couples find that they can negotiate a win-win settlement agreement when they have realistic expectations and are willing to accept that they may not get everything they want.

When spouses who have jointly owned and operated a business together file for divorce, a common way to divide the business is to transfer one spouse’s interests in the business to the other spouse. It is unusual for spouses who divorce to continue operating a small business together because of the difficulties they may face when trying to get along after separation.

If a spouse wants to transfer his or her interests in a family-owned small business, the receiving spouse should sign a release of future claims by the business. This will protect the transferring spouse from future legal claims involving business affairs that they are no longer involved in managing.

The transferring spouse may receive a K-1 tax form indicating that the business interest has been transferred the same year that the divorce settlement is executed. It is important to make sure that the form does not include income that was not distributed the prior year.

Another option is for one spouse to keep operating the business while it continues to be jointly owned. The operating spouse can include a provision for buying out the other spouse’s interests in a settlement agreement. This option can work when there is not sufficient cash available to liquidate the transferring spouse’s interest at the time the property settlement agreement is finalized.

Some spouses want to continue to maintain joint ownership of a family business after a high-asset divorce. This is especially common when the business has the potential for significant appreciation in value. Spouses in this situation should require a buy-sell agreement to protect their future interests.

If you have questions about how to divide a small business during or after divorce, an experienced family attorney may help you understand the most common approaches. The attorney may be able to negotiate for a fair deal that works for you.