Integrity. Quality. Experience.

How can business liquidity cause issues during a divorce?

On Behalf of | Nov 30, 2021 | Divorce Involving A Business |

When you divorce as a business owner, your business becomes part of your marital assets. Unless you have an agreement that leaves it out, you will need to figure out a compromise that allows you to keep your business.

Your options include co-owning the business with your spouse, buying your spouse out or selling it and splitting the money. The National Law Review explains that you could try to give your spouse extra assets to pay for his or her half of the business, but if you lack assets, then you will have to go for a buy-out of your spouse, but that can get tricky due to liquidity.

Liquidity

When you liquify an asset, you turn it into cash. The problem with most businesses is they have a high value, but they lack liquidity. The value of the business may be largely in your skills and other aspects that you cannot convert into money. This makes it problematic when you need to buy out your spouse’s interest.

Potential solutions

You do have some options, depending on what type of agreement you can strike with your spouse. You may be able to defer payments. This would mean you remain joint owners and pay the other person over time. Once you have paid the full amount agreed upon, you become the sole owner.

If you want to do this, you do have to have an agreed-upon value for the business set at the time of your divorce. The actual value could go up or down, but the agreed-upon value is what matters.

Archives

FindLaw Network