When a marriage ends in divorce, the division of assets is often a complex and emotionally charged process. This becomes even more challenging when one or both spouses own or operate a business. The division of assets in a business involves several legal and financial considerations that must be handled properly.
As a general rule, the spouses' combined assets shall be divided equally, after deduction of debts in the divorce settlement.
It is not necessarily the case that even if you owned the business before the marriage was entered into, its value can be excluded from the division. In some cases, unequal division may be appropriate.
It is also necessary to consider whether joint ownership may have been established where one spouse has worked in the other spouse's business.
Some examples of situations where such assessments may be relevant:
1. Spouse owns a business alone: One spouse has started and runs a successful business that has grown significantly during the marriage. In the event of divorce, a decision must be made as to whether the value of the business should be divided.
• Example: A woman owns and runs a popular café that has become very profitable. In the event of divorce, the valuation of the café will be a key issue, as the other spouse may be entitled to a share of the value, even if they have not been directly involved in its operation.
2. Both spouses are involved in the business: The spouses run a family business together. In the event of a divorce, questions may arise as to who will take over the business, or whether the business should be sold and the proceeds divided.
• Example: A married couple runs a business together. In the event of divorce, they must decide whether one of them will buy out the other, or whether they will sell the business and divide the proceeds. If both want to keep the business, conflict may arise.
3. One spouse has invested significant funds in the other spouse's business: One spouse has used their own funds to support the other spouse's business. In the event of divorce, conflicts may arise regarding the repayment of invested funds and the possible division of the value of the business.
Challenges in the distribution of assets in commercial activities
1. Valuation of the business. Determining the value of a business can be complicated and time-consuming. This often requires experts who can assess the company's financial position, future earnings potential, and market value.
• Example: A married couple disagrees about the value of a technology start-up company. The husband believes the company is worth $1 million based on future growth forecasts, while the wife believes it is worth $500,000 based on current revenues.
2. Distribution of ownership
Deciding how ownership of the business should be divided can be a major challenge. Should the business be divided equally, or should the person who has run the business receive a larger share? This can be particularly difficult if both spouses have been actively involved in the business.
• Two spouses who have both contributed to the development of a successful consulting business may disagree on how much each of them is entitled to.
3. Consequences for operations
A divorce can affect a company's operations and financial stability. Conflicts over ownership and distribution can lead to uncertainty among employees, customers, and suppliers, which can damage the company's reputation and finances.
• A small business that depends on close cooperation between its owners may lose important business information and customers if the owners separate and no longer work well together.
4. Tax implications
The division of business assets may have tax implications for both parties. Questions may arise regarding capital gains tax, value added tax, and other taxes that may affect the net value received by each party.
Many different conflicts may arise, such as disagreement regarding valuation, disagreement regarding the distribution key, operational control or the possible sale of the business.
We can assist you both in connection with the divorce settlement and before it comes to that. If you want to be sure that the value of your business can be kept out of the division of assets, this can be ensured by a prenuptial agreement.
Please feel free to contact us if you require assistance. The author of this article is a partner in the Family, Inheritance and Probate Department at Langseth Advokatfirma DA and regularly undertakes litigation assignments and other assistance within this field.