Back to Learning Center

Blog

Specialty tag(s): Divorce for Business Owners, Divorce

Benefits and Risks of Selling or Transferring Business Assets in a Divorce

Ryan R. Bauerle | September 14, 2023

For high-earning couples who own a business, going through a divorce can be fraught with difficult financial decisions. The division of business assets is a complex and sensitive issue, especially when you started the business yourself and built it into what it is today. Ultimately, you’ll need to reach an agreement on who will own part or all of the business after the divorce and how you’ll get to that point. Should you divide the business and co-own it? Should one of you buy out the other’s interest? Or will you need to sell part or all of the business to ensure a fair resolution? Before making such major decisions, it’s important to understand the risks and benefits involved. An experienced family law attorney who is familiar with the ins and outs of business asset division can be a key resource for business owners during this difficult life event.

Potential Benefits of Transferring Business Assets to a Spouse

Selling or transferring business assets to your spouse might feel like the wrong decision when you first consider it, but there are many benefits to choosing this type of settlement.

1. Maintaining Business Continuity: By transferring a portion of the business to your spouse, you can ensure the continuity and stability of the enterprise, particularly if both of you have played a significant role in its success.
2. Simplifying Asset Division: Transferring business assets can streamline the overall division of marital assets, especially if the business is a significant portion of the couple’s total wealth.
3. Tax Advantages: In certain jurisdictions, transferring business assets to a spouse as part of a divorce settlement may offer tax benefits, such as minimizing capital gains taxes or taking advantage of tax-free transfers.
4. Release from Potential Liability:  Often, when a business is transferred to one spouse or another, the receiving spouse assumes any liability and debts associated with the entity. 

Potential Risks of Transferring Business Assets to a Spouse

Selling business assets to your spouse may have its benefits, but it has risks, too. Your lawyer can help you weigh the benefits against the risks, but here are some of the most common issues that arise:

1. Compromising Business Control: Transferring a portion of the business to your spouse means giving up some level of control and decision-making authority, which can impact long-term business operations.
2. Potential for Conflicts of Interest: If both parties remain involved in the business post-divorce, conflicting interests and differing visions for the future could arise, leading to challenges in running the business effectively.  While there are some stories of success, generally speaking operating a business with your ex-spouse is not advisable. 
3. Financial Strain on the Business: Depending on the financial arrangements and the valuation of the business, selling or transferring assets could put a strain on the business’s financial health

Negotiating a Buyout of a Spouse’s Marital Interest in the Business

You may come to the conclusion that the best option for your specific situation is to buy out your spouse’s interest in the business. To do this, you’ll need to establish a fair market? business valuation. Determining the fair market value of the business is crucial to negotiating a buyout. Professional valuation experts can assess the worth of the business and help ensure an equitable settlement.

Next, you’ll need to structure the buyout. Negotiating the terms of the buyout, such as payment schedules, installment options, or the inclusion of other marital assets, can help facilitate a smoother transfer and minimize the impact on the business.

Make sure that you work with an experienced divorce attorney throughout the process to protect your assets. Attorneys who specialize in high-asset divorces can help protect your rights and interests throughout the negotiation process.

Selling a Portion of the Business to Provide a Fair Settlement

Similarly, if you decide to sell a portion of your business to reach a settlement, you’ll also likely need to complete an independent business valuation, . This will ensure an equitable outcome for both parties. Following a valuation, clear terms for the sale need to be established; This may include payment arrangements and the scope of transferred assets, which can help ensure a smooth transaction and minimize potential disputes. An experienced attorney can help you make sure that all of the paperwork is properly completed and that all of the terms agreed to are equitable.  Your attorney will also assist you in finding an experienced expert to affix a value for the business. 

Consequences of Liquidating or Selling the Business During Divorce Proceedings

It’s usually in your best interest to reach a settlement without having to sell or liquidate your business. Doing so has serious consequences, including:

1. Financial Implications: Selling the business may result in tax liabilities, loss of future income, and reduced overall net worth.
2. Loss of Business Legacy: Liquidating the business leads to the loss of a legacy and the end of years of hard work and dedication invested in building the enterprise.
3. Impact on Employees: Selling the business may have adverse effects on employees’ job security and morale and the overall stability of the organization.

Find Experienced Counsel to Help You Make the Right Business Decisions During Your Divorce Proceedings

It’s important to carefully consider the specific circumstances of your case, including the nature and value of your business, before making any decisions. The best decision will be unique to every couple and business. Consulting with the experienced divorce attorneys at Goranson Bain Ausley can provide valuable guidance throughout the process, helping you to negotiate a fair settlement that takes into account the best interests of both parties involved while preserving the long-term viability of the business. Contact us today.

Learn More

Ryan R. Bauerle is a skilled litigator and strong negotiator; he regularly obtains favorable settlements without ever stepping foot in the courthouse. Ryan works with clients to evaluate the pros and cons of their options, including costs, to make sound and efficient decisions about moving forward. Ryan is Board-certified by the Texas Board of Legal Specialization in Family Law. He is a Fellow of the prestigious American Academy of Matrimonial Lawyers and has also been recognized as a Super Lawyers Rising Star  and named a Best Lawyers: Ones to Watch, in multiple years.

At the largest law firm in Texas exclusively practicing family law, Goranson Bain Ausley has some of the top divorce lawyers in Texas, and we want to help you secure the best possible outcome. Contact us today to set up a consultation to learn more about how to choose the right family lawyer for your unique situation.

Popular Family Law Articles