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Debunking myths about what happens to a business in a divorce

On Behalf of | Nov 3, 2021 | Firm News

Dealing with a business is stressful during a divorce. Spouses often wonder what will happen to it and if they will be properly compensated.

There are some common misconceptions that can cause confusion and more stress. While each case differs, this article debunks some of the most common myths.

Only one spouse will receive the value

Determining a spouse’s stake depends on many circumstances. The date the company started and how the spouses contributed to it, both directly and indirectly, are key factors. Another element is the type of establishment, such as a large corporation, partnership, small business or sole proprietorship.

In community property states, the court designates assets as communal or separate. Even if a spouse owned the business before marriage, the court does not necessarily characterize it as separate property, especially if it grew during the marriage.

We will have to sell the company

While you can sell the business and divide the proceeds, there are other possible outcomes. A common scenario is for one spouse to acquire the operation and buy out the other’s interest. In some amicable situations, both spouses can stay involved. If a divorce is contentious enough to put the firm at risk, the court might appoint a receivership.

The balance sheet determines the company’s value

Balance sheets are just one aspect of fair market value. There are different approaches to compute the value in a divorce, including an income approach that projects future profits. Some other methods include comparing similar businesses and focusing on assets.

Each divorce involving a business differs, and it can be difficult to predict the outcome. A strong case will help to ensure that you have the result you are hoping for.