We’re Getting Divorced. Who Keeps the Family Business?

When going through a divorce, other than matters involving children, division of marital property can get quite contentious. The more assets a couple has, the more contentious a divorce can become. Maryland is an equitable property state, meaning that all property acquired during the marriage should be divided equally, unless a judge decides that division would be unfair or unjust, or it can be proven that some property is actually not marital.

It’s important to remember that “equally” doesn’t mean 50/50. It means the court is looking for a fair outcome for each party, and that does not necessarily mean splitting the property directly down the middle.

Maryland recognizes a family business as marital property. Even if the business was owned by one spouse before the marriage, the value of the business accumulated during the course of the marriage is likely to be considered shared property. If you do not have a pre- or post-nuptial agreement spelling out exactly what will happen to the family business in the event of a divorce, the division of property will have to be hashed out in court if you cannot come to an agreement.

How is the business divided after divorce?

A divorcing couple has several options for dividing the family business during a split.

• Co-ownership: This may not be an option for most couples, but some can make it work. Continuing to run the business as partners instead of spouses allows both parties to retain mutual control of the business and continue to reap the profits.
• Sell the business: The divorcing couple can sell the business and split the profits. This allows each spouse to invest in their own separate businesses if they desire to do so. However, the sale and resulting paperwork could take a long time.
• One spouse buys out the other: One spouse keeps the business and buys out the other spouse’s financial interest. The buying spouse may not have enough liquid assets, however, to pay off the selling spouse. In cases like these, sometimes they can use other assets, like the equity in the marital home, 401Ks or IRA assets, or using a structured settlement that pays out over several years.

It is important to have a qualified attorney on hand to ensure you know the value of the business. Additionally, even if one spouse did not directly work in the business, the court takes different factors into account. Here is an example—one spouse ran the business and one spouse was a stay-at-home parent. A judge will take into account the contributions of the stay-at-home parent, as their work in the home (caring for the children, housework, cooking, etc.) allowed the other spouse to more easily run the business.

McCabe Russell, PA has helped hundreds of Bethesda clients reach agreements that put the financial issues that are important to them first. To speak with an experienced divorce lawyer serving Montgomery County clients today, please call 443-812-1435 or fill out our contact form. We also maintain offices in Columbia, Rockville and Fulton.