Dividing up assets during a divorce is challenging, and it is even more difficult when the couple owns a business together.
When it comes to figuring out what to do with the business, there are three main options. However, the value of the business is a factor, and the partners should consider the tax implications of each option.
Options for division
Market Business News discusses the three common options for business division. One option is to keep on as business partners and continue to run the business together. This option requires a more harmonious relationship between the ex-spouses, so it is not as common of a strategy. However, it can work if the partners are able to work together or come up with a working arrangement that allows them to work separately while keeping operations running effectively.
One common strategy is to sell the business and split the proceeds. Another option is for one partner to keep the business and buy the other’s percentage of ownership.
Common valuation methods
If the partners choose to sell the business, either to a separate party or to the other partner, it is essential to value the business appropriately. The most commonly used methods to do this are:
- Asset approach
- Income approach
- Market approach
Depending on the complexity of the situation, a financial appraiser may combine methods to determine a more accurate value.
Tax implications
In Daily Times discusses that before choosing a division option, each partner should consider the tax implications of each one. Any asset transferred or sold, including a jointly owned business, is subject to capital gains taxes. The partners may want to speak to someone about how to minimize this financial burden.
