Divorce is a challenging emotional process, but it also often involves the division of property and assets accumulated during a marriage. In Minnesota, the division of marital property follows the principle of “equitable distribution,” which means that the court aims to divide assets fairly, though not necessarily equally. This process can become particularly complex when a business is involved, as business ownership brings unique challenges in valuation and division that can significantly impact both parties’ financial futures.
The challenges of business ownership and valuation
Assuming there is no legally binding prenuptial or postnuptial agreement, owning a business introduces several unique challenges during a divorce. Firstly, accurately valuing a business can be a complicated task. Factors such as the type of business, market conditions and financial history are critical in determining its worth. Expert business appraisers are often used to ensure a fair and accurate valuation.
Additionally, the business may qualify as marital property if the owner started it or it significantly grew during the marriage. This classification means that the business is subject to division, which can threaten its continuity and financial stability. It can be further complicated if other co-owners are unhappy to be saddled with an unwanted business partner.
Options for maintaining ownership
If you want to maintain full ownership of your business during a divorce, there are several strategies to consider:
- Buy out the spouse: One common approach is to buy out the spouse’s share of the business. The owner can do this by offering other assets of equivalent value, such as real estate, retirement accounts or cash settlements.
- Structured settlement: Another option is where the business owner pays the spouse a predetermined amount over time. This arrangement can be beneficial if a lump sum payment is not feasible, requires liquidation or has unwanted tax implications.
- Mediation and negotiation: Mediation can help both parties reach a mutually agreeable settlement. A mediator can facilitate discussions regarding business ownership (or other areas requiring negotiation) to ensure that the arrangement considers both parties’ interests. It could also lead to creative solutions that allow the business owner to maintain control.
- Prenuptial or postnuptial agreements: While this option is proactive rather than reactive, having a prenuptial or postnuptial agreement can protect business interests if the owner divorces. These agreements can specify how the business will be handled, reducing uncertainty and conflict. We should note that a coerced agreement is not legally binding.
Outside help often necessary
Navigating the complexities of divorce while trying to retain business ownership is no small feat, partly because many owners have a strong attachment to their business. It’s crucial to seek the guidance of experienced legal and financial professionals who can help owners and spouses understand the options and devise a strategy tailored to their unique situation.