Dividing a Business in Divorce and do it fairly is one of top questions that divorcing couples are searching for. When you add to the mix the volatility triggered by the COVID-13 pandemic, it magnifies the challenge. “These are unprecedented times that call for creative and practical solutions”, says Denisa Tova, a financial divorce mediator.
The three common scenarios are:
- A business owner spouse keeps the business and buys out the non-owner spouse out of her/his share of the business immediately.
- The business is sold, and proceeds get divided.
- The business owner spouse keeps the business and they defer buying out of the non-spouse until some pre-set future date. In the meantime they share the income from the business.
Let’s take a deeper look at the last option that seems to offer the most fair way of splitting the business in uncertain times.
The business owner spouse is typically interested in keeping the business beyond divorce. The goodwill of the business continues to build up, especially during mid to long-term marriages and it may not be there now during these volatile times. Therefore, if the non-business owner spouse decides to have the business valued today, she/he may be walking away with much less than what the business is worth in healthy economic times.
During the pandemic, there are more couples choosing to wait to get their fair share. As a financial mediator, I have been guiding couples to explore how this option would impact them each financially in the interim and in the long term. The decisions that generally have to be made with this option are:
- What is an equitable and fair percentage to share the income generated from the business?
- At which future date will the business be valued?
- How will the share of the non-owner spouse be distributed?
- What are the risks for each spouse?
Of course not every business is experiencing the volatility the same. There are a few industries that have not been impacted as severely. The advantage of working with a financial mediator is being able to explore a range of scenarios, their impact and come up with creative, equitable and practical solutions.
Denisa Tova, CFP, CDFA, is a highly experienced mediator and a certified divorce financial analyst. She has mediated over 2000 divorces. She prefers a transparent, “know what you pay for” flat fee versus hourly fees and retainers, which can get out of control.
Business Valuation Article in Wikipedia.