Once the value of a business interest is established for equitable distribution purposes, the percentage interest attributable to the non-owning spouse must then be determined.
There is no rule of thumb that a non-owning spouse is entitled to 50%. In fact, courts have pointed out a fifty-fifty split is not favored since the vast majority of work and personal effort is usually accomplished by the owning spouse.
Further, when the business is sold in the future, there will be tax consequences of that sale that cannot be known at the time of a divorce.
Another reason against a fifty-fifty split is that an evaluation of the business for equitable distribution purposes is in part based on an income stream and that future income stream may also be used to pay alimony.
In terms of buying out the interest of the non-owning spouse, it can be done in several ways. Usually cash up front is the cleanest and most preferred way. However, there may not be enough cash to buy out a spouse’s interest. A trade-off against another asset may work, if there are other assets of comparable value. If neither of the above make sense, then an installment plan must be put into place with an appropriate rate of interest and security to cover the obligation.
Dealing with a business in a divorce case raises many complications, and all issues (tax implications, method of ownership, evaluation factors, buy-out) must be taken into consideration.