How to navigate a divorce when you own a business with your spouse
Owning a business with your spouse can add a layer of complication to any divorce. How you navigate such a divorce will depend on several factors, including:
- whether you started the business together during the relationship or whether one spouse brought the business with them to the marriage
- whether the business is a corporation or a partnership
- what you plan to do with the business following the divorce.
Our Edmonton family law lawyers can answer whatever questions you might have about navigating a divorce when you own a business with your spouse.
How a business is treated during a divorce
A business is an asset. When spouses divorce, they divide equally:
- the value of any assets and debts they acquired during the relationship
- the increase in value of any assets that they brought with them to the relationship
- the value of the family home.
Unless you intend to sell the business to a third party and divide the proceeds with your spouse, you will likely need to have the business valued. There are many different methods used for valuing a business. A professional business valuator will know which method to use in your case and what documents they will need to give you an accurate picture of the value of your business.
Are you going to stay in business after your divorce?
In addition to being relevant to the overall division of the family assets, you and your spouse will also need to decide what to do with the business after the divorce. Depending on your circumstances and personal preferences, you may decide to:
- wind up the business
- sell the business to a third party
- sell your share of the business to your spouse so that your spouse can continue to run the business
- buy your spouse’s share of the business so you can continue to run the business
- continue to run the business with your spouse.
Each option is likely to yield different benefits and have different tax consequences. If you and your spouse intend to continue to work together to run the business, you may consider preparing an agreement that details how you intend that to work and what you will do if you need to put an end to your business partnership.
Winding up a business and selling its assets generally has different tax consequences when compared to selling a business as a going concern. There are many factors to consider when deciding what to do with the business after your divorce and you might find that some of the above options are not available to you.
Partnership or corporation?
If you and your spouse run a business together, you may be considered partners in a partnership or you may each own shares in a corporation. How the business is structured will have an effect on:
- how the business is valued by a business valuator
- the procedures for winding up or selling the business
- the tax consequences related to any transactions.
It is also possible that either you or your spouse owns a business and the other spouse simply worked for the business. It will be important to determine the exact ownership structure of the business in order to properly navigate the divorce process.