Issues to consider when dividing company assets in divorce

On Behalf of | May 27, 2022 | High-Asset Divorce |

Wealthy couples going through a divorce in Illinois often have a conundrum that those with fewer assets don’t face, namely, how to equitably divide assets in a business that both spouses own. Many of the issues involved can become contentious requiring careful consideration before making a final decision.

Transferring ownership is a key issue

Couples involved in a high asset divorce are rarely able to work together once they decide to split. Even co-ownership can lead to conflicts, which is why one spouse will generally transfer ownership interest to the other. When doing so, you should be aware of several points:

  • The spouse receiving the ownership interest must provide a release of claims from the business.
  • The spouse transferring the interest should seek indemnity from the business for future claims made by third-party creditors or others after the divorce is finalized.
  • Within a year of the divorce, the company may issue a K-1 tax document to the transferor that indicates that no phantom income was involved in the transfer.
  • The spouse receiving the interest should ensure that all rights, titles and interests are transferred and that no holdbacks have occurred.

In some cases, the business may have little liquidity. When this situation occurs, the spouse transferring the assets may need to be creative and pay off the receiving souse over several years to equitably distribute the assets.

Other issues involving co-owned businesses

Complex asset division is common when company ownership is involved. Relinquishing a portion of your assets in the business, even if you aren’t involved in operations, gives you a seat in the boardroom, so to speak. Your divorce documents must be drafted carefully to ensure legality.

In other situations, both spouses may want to continue working. You’ll also require skilled negotiation to protect your interests.