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The complexities involved in dividing a business during divorce

One of the most complicated aspects of the property division of a divorce is dividing a business. The challenges stem from multiple factors, and it helps to understand the hurdles you may encounter to prepare accordingly and protect your interests.

First in line is determining whether the business is subject to division. In other words, is the business considered marital or separate property? This can be fairly straightforward if the business began after the marriage, which usually makes it a marital asset

A business started before the marriage is usually considered separate property unless marital funds were invested in it or if it grew substantially during the marriage. Your spouse may be entitled to a stake in the business if that’s the case. Here are other complexities that could arise.

Valuation of the business

Accurately valuing the business to enable a division can be a complex process. For starters, there are different valuation methods, each with its assumptions and calculations. Quantifying intangible assets and future earnings can also present a headache, as can the presence of multiple stakeholders or partners with interests in the business.

Establishing each spouse’s share of the business

You may overcome the valuation hurdle only to run into yet another obstacle – establishing each spouse’s share of the business. This involves evaluating every party’s contribution to the business during the marriage. It’s worth noting that indirect contributions also count on this front, such as managing household duties and responsibilities to allow the other spouse to focus on running the business.

The potential tax implications

You need to understand the taxes that could be triggered by transferring ownership or selling the business to mitigate the financial impact. Overlooking the tax consequences can leave you with unexpected financial obligations or legal issues due to non-compliance.

The importance of legal guidance during a divorce cannot be overstated, especially when the stakes are so high. It can make all the difference in achieving a fair settlement and safeguarding your financial interests throughout the process.

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