Bringing your Ohio small business through a divorce

April 23, 2013

Divorce, simply put, is stressful. There are emotional considerations, the welfare of your children, the financial strain of establishing two separate households and the day-to-day realities of not being a cohesive unit with your spouse anymore. With all those disparate issues competing for your time and energy, it is no wonder that many divorcing couples don't have the ability to focus intently on an extremely important part of their lives: their small business.

Why should a small business be treated differently?

A small business, whether it is a corporation, an LLC, a partnership or a sole proprietorship, can easily grow into a big headache during a divorce unless the proper questions are answered and the appropriate procedures followed. There is help available, though.

A skilled family law attorney or financial expert has the knowledge and skills necessary to provide a frank assessment of the validity of continuing a business after divorce, handling tricky property/business valuation issues and drafting a sound property settlement agreement that is workable for each party.

For instance, an attorney will be able to determine proper ownership of the business, if there is a buy-sell agreement to follow (and if a sale between the parties would be treated as an asset purchase, a stock transfer or an even exchange, a decision which could have huge tax implications for the parties down the road), or if other legal tools (like wills, trusts or prenuptial agreements) exist that could give guidance about how the business is to be handled in the event of a split.

Tricky issues abound

Unlike other marital assets like a car, home or boat, small businesses are much harder to pin a precise market value on. This is in no small part due to abstract considerations like goodwill, a loyal customer base, tradition and the uniqueness of the particular product or service provided. Of course, there could also be issues about intellectual property, patents or trademarks that are proprietary to the business and could be a revenue stream in the future.

Plus, if the business is known as a so-called "mom and pop" operation, how will customers respond if "mom" or "pop" is suddenly out of the picture? Can the business even survive after a divorce?

Sometimes, divorcing spouses have an amicable enough relationship that they can still work together after the marriage ends, but this is not feasible for every situation. Knowing what level of involvement each party intends to have after the divorce can be key in deciding how the business should factor in to settlement arrangements.

Creative solutions are possible

There are benefits to being the owner of a small, privately held, business in situations like this: answers can often be found by thinking "outside the box." It might be possible for one spouse to buy the other out of the business in exchange for the marital home or an award of alimony. Working collaboratively with attorneys and financial advisors, business owners can craft the solutions they need to ensure that themselves - and their businesses - come out of the divorce in the best possible position.

Article provided by Lawrence Law Office
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