Dividing a business with a contractual agreement during a divorce

On Behalf of | Apr 2, 2020 | Blog, Divorce |

Life is full of challenges, and sometimes matters don’t go according to plan. This is especially true for divorce proceedings where one or both parties have a stake in a business. Each soon-to-be ex should have a strategy that paves a pathway forward through the divorce. Specifically, an attorney in Virginia can offer divorcing parties legal services to navigate through the separation of marital business finances.

It’s important to remember that private businesses can be considered part of the marital estate. Even if only one spouse was actively involved with the company, both parties could have a claim to the assets. Divorcing spouses should consider all future outcomes when a business is involved in the property division process. In most cases, spouses will not receive everything they desire in the property division settlement. However, it’s important that each spouse obtains the financial necessities for post-divorce life.

Divorcing couples can divide their business interests in several ways. Of course, both parties could continue running the business together if they can remain cordial after the divorce. Another way is for one spouse to keep a small minority stake in the business and sell the remainder interest to the other party.

Eventually, desires and tastes change, and an opposing spouse may not want to continue in a business partnership at all with the other spouse after the divorce is finalized. This party can sell his or her interest in the private business to the other party and simply walk away without any liabilities.

For example, during the divorce proceedings, one spouse, the transferor, sells his or her business interest to the other spouse — the transferee. The transferor doesn’t want any additional liabilities once the transferee receives the buyout settlement. A divorce attorney can draft a business contract whereby the transferor would not be subject to any phantom income and owe additional income taxes once the transferee receives the K-1 taxable income document.