When a couple who works as partners in a business gets divorced, the business could be adversely affected. One spouse may buy out the other spouse, or both could still work at the business, though that is not a likely situation unless the couple is parting on very friendly terms.
Iowa is an equitable distribution state, which means that the business would get split equitably.
Equitable distribution does not mean that the couple gets an equal share. Several things are taken into consideration, including current salary, future salary, non-marital assets, spousal support, and liabilities. One spouse may get 60 percent because he or she makes less than the other spouse.
When spouses have to divide a business, it could become difficult.
If the business is to be sold or if one spouse buys out the other, the business will have to be appraised. The spouse keeping the business may have to take a loan out to pay off the other spouse. If the spouse keeping the business cannot get a loan, he or she may either pay the other spouse’s payments or the business will have to be sold. If the business is sold, any money left after all business bills are paid will get divided equitably between the two spouses.
If one spouse keeps the business, the other spouse will be out of work. Depending on whether the buyout is in payments or a lump sum payment, the court may consider temporary alimony for a couple of years so the spouse who didn’t stay has time to find a job and work up to what he or she was making at the business.
Other considerations when business partners who are married go through a divorce include:
- The spouse keeping the business must find a replacement if the other spouse was an integral part of the workings of the business.
- The spouse keeping the business must be able to keep the business financially.
- Employees who liked the spouse that left may leave.
- Customers who liked the spouse that left may also leave.
Before one spouse decides to keep the business, he or she should consider all the ramifications of buying out the other spouse. You may lose quite a bit of business, especially if the divorce is contentious. If the divorce is friendly and the spouses are on good terms, the business won’t suffer as much, especially if both spouses continue the partnership.
This brings up another issue.
Prior to the divorce, the two spouses probably worked together just fine. However, with the divorce, both spouses should protect themselves by creating a contract if they are both keeping the business. Even those who are friendly with each other should have a contract to protect themselves. The contract should outline several things, including but not limited to salaries of both spouses, responsibilities, duties, and time off. The contract should also state what happens if one spouse does decide to leave, including the buyout amount, a non-disclosure agreement, and a non-compete clause.
Contact a Business Divorce Lawyer
If you are planning a divorce and own a business with your spouse, contact a divorce lawyer to discover your best course of action. Request a consultation with Daniel Willems to get started today.