CASH FLOW TIGHT? HOW YOU CAN PAY YOUR SPOUSE FOR AN INTEREST IN A BUSINESS
Once a value for the business is established – usually through a business valuation done by a certified business evaluator or expert which we will discuss in more detail in a later blog in this two month series – we can find creative ways to pay your spouse for that interest without you necessarily having to have the cash on hand or in the bank to make what can sometimes be a very large payment. We know it’s difficult to run a business if one person tries to take all of the working capital, cash or liquidity.
Options that are available include making offsets, for example:
- You can keep the business and working capital and offset your interest in other community assets (meaning give your spouse more than half of these other assets)
- You could take more of the community debts which will typically have a structured payment over time
- You can take out new debt such as a line of credit or other type of loan to make the payment to your spouse and then repay the third party lender
- Or some combination of some or all the above.
An example of offset in this situation may be that the Court allocates all of or a portion of your one-half share of the equity in the former marital residence to your spouse in exchange for what you owe them for their one-half share in the value of your business.
Or the Court could allocate to you more than one-half of the community credit card or other debt in exchange for the amount that you would owe your spouse for their interest in your business. The Court rarely, if ever, orders that one’s business be sold, especially if that spouse is self-employed and the business is their sole or main source of income.
For the Court, ordering the sale of a business where it is the main source of income for one party is “cutting off your nose to spite your face” and causes all sorts of unnecessary upheaval in other areas for required for the Court’s determination such as the calculation of the amount of child support and/or spousal maintenance that will be paid.
Going through a divorce when you or your spouse have your own business can be complex and nerve-racking. Having an attorney who is experienced in dealing with these complicated issues is essential to protecting both the business and your peace of mind. If you would like to work with one of our experienced divorce attorneys, please call OWENS & PERKINS at480.994.8824 to schedule your free 30 minute consultation.