Last Updated: November 23, 2009
In some circles, divorce is referred to as a special circumstance. It's special in part because unlike most things in financial planning, it represents the destruction of a plan rather than the construction of a plan.
In a divorce, there are typically issues of alimony and child support. In a divorce, property, retirement plans, career assets and a house might have to be valued and divided. And in some cases, there might even be a family business that has to be valued and divided.
According to FPA member Jeffrey Rattiner, CPA, CFP®, when it comes to dividing a family business (or a house for that matter), financial planners say that you typically have three options:
- One spouse keeps the business/home by buying out the other's interest.
- Both spouses continue to own the business/home.
- The business/home is sold and proceeds are divided.
To be sure, it's easier said than done. "If a business is owned by a husband or by husband and wife, during a divorce, it is a mess," said Chia-Li (Jolly) Chien, CFP®, CRPC, PMP, founder and chief strategist of Chien Associates, LLC.
According to Chien, who specializes in exit planning for women business owners, one problem is this: "Whoever is 'in' the business wants the business valuated at a low price, so the other party can walk away with a smaller amount."
"Thankfully, there are two ways to look proactively at this," she said.
- A business operating agreement typically doesn't address the divorce, but sometimes it will. "Look into the operating agreement to see if there is a specific clause to address divorce," Chien said.
- Examine the business buy/sell agreement. Divorce is typically addressed in this document. For instance, partnerships, such as CPA or law firms, typically have clauses that state that a partner will buy out the spouse's share at a pre-determined price and term.
Now, for those who do not have the above agreements in place, Chien suggests that you get one now before it's too late. "A good business attorney can help with that," she said.
If you are going through a divorce and you don't have the aforementioned agreements in place, Chien suggests that you hire a "great" valuation specialist. "Each party will present the case of how it arrived at the value and how to buy the other party out," she said.
Find a financial planner who can help you with your divorce or help you sort through business operating and buy/sell agreements.