Divvying up a business after divorce
When couples start a business together, they pour their hearts, souls and bank accounts into making the Nevada startup grow. A divorce can have serious consequences for the business, particularly if spouses cannot come to a workable agreement regarding division of the company. However, there are several options for keeping the business alive after the marriage ends.
Nevada is a community property state, which means that under state law, all property obtained by either spouse during the marriage is considered community property and is distributed equally in the event of a divorce unless the court has a compelling reason for unequal division. However, property that was owned by either spouse prior to the marriage is considered separate property and is treated as such.
This law may make property division challenging for couples who are partners not only in marriage but also in business. According to MarketWatch, when the business represents a significant chunk of a couple’s net worth, it may not be possible for one spouse to buy out the other. In this situation, the most obvious solution may be to sell the business.
This strategy may be the most straightforward, and it represents a clean split in a heated divorce. However, when couples have poured significant time, energy, and money into the family business, selling may be heartbreaking. Alternatively, one partner could take out a loan to buy the other spouse’s share, ensuring that the business retains at least one of its original founders. This strategy has its pitfalls, however, because it entails piling additional debts on top of the existing expenses from the divorce and may ultimately harm the business.
If the separation is amicable, a couple may choose to stay in business together even after their marriage ends. This way, both partners still have a role in their company, which minimizes the potential for major managerial upheaval. In this scenario, it may be advisable to have a backup plan, such as a shareholder agreement with guidelines for buyout, in case the business partnership fails after the marriage is dissolved.