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Options for a business co-owned by divorcing spouses

If you own a business when you get married, it's wise to detail in a prenuptial agreement what will happen to the business should the marriage end. However, many couples go into business together after they have been married for a time.

If they don't stipulate through legal documents how the business will be handled in a divorce, they could find themselves in a messy, costly court battle. The business is likely the largest asset that both spouses have. Therefore, they should make necessary adjustments to those documents as the business expands or one of the spouse's participation in it changes over the years to reflect their current status.

Many couples, as well as non-married business co-owners, draw up what's known as a buy-sell or buyout agreement. It stipulates what happens if one partner dies or otherwise leaves the business. It's generally best if the agreement is written so that one spouse sells an interest in the business they received in the divorce settlement back to the company, using a predetermined valuation method.

Some divorced spouses are able to continue to own a business together. If you're able to do that, you should have a shareholder agreement that gives both spouses the right to buy the other one out for an agreed-upon price.

There are other options if one spouse wants to keep the business, but may not be able to afford it on his/her own, such as bringing on another partner or investor. If you and your estranged spouse have a family business, it's essential to get sound legal and financial advice to determine what your best options are for that business once you're no longer married.

Source: MarketWatch, "How to protect your family business during a divorce," Daniel Thompson, Feb. 10, 2017

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