Divorcing when one or both spouses co-own a business with a third-party business partner creates a unique and complex set of legal issues. The business partner has rights that may conflict with the divorce proceedings, and the business entity itself must be carefully handled to avoid triggering buyout rights, disrupting operations, or creating liability for all parties. Hauser Family Law advises Las Vegas clients through these high-stakes divorces involving business co-ownership.
Community Property Interest in a Jointly Owned Business
Under Nevada’s community property law (NRS 123.220), any interest in a business that was acquired during marriage using marital funds or marital labor is community property — regardless of whose name is on the ownership documents. If your spouse owned a 50% interest in a business during the marriage, the community may own some or all of that 50% interest. The non-owning spouse may be entitled to half of the community interest in the business — but that does not mean they automatically become a co-owner of the business alongside the business partner.
The Business Partner’s Rights
Most business partnership agreements, LLC operating agreements, and shareholder agreements include transfer restrictions and buy-sell provisions that are triggered by divorce. These provisions may: prohibit a spouse from transferring their interest to a third party (including the divorcing spouse’s ex) without the partner’s consent; give the business partner the right of first refusal to purchase the interest at a defined price if the owner-spouse must divide or sell it; or require dissolution or buyout under specific circumstances. These contractual rights take precedence over a divorce court’s property division orders in many respects — a family court cannot force a business partner to accept a new co-owner that the agreement prohibits.
Valuation: The Central Dispute
The most contentious issue is usually the value of the community property interest in the business. Both spouses will typically retain competing business valuation experts who apply different methodologies: the income approach (discounted cash flow based on projected earnings), the market approach (comparable transactions or public company multiples), or the asset approach (net asset value). Key disputes include: whether enterprise goodwill (attributable to the business itself) or personal goodwill (attributable to the owner’s individual reputation and relationships) should be included in the community interest; the appropriate discount for lack of marketability (DLOM) when the interest is illiquid and subject to transfer restrictions; and how to treat the owner-spouse’s below-market compensation that artificially depresses business income.
Resolution Options: Buyout, Sale, or Offset
There are three primary ways to resolve a co-owned business in divorce. First, the owner-spouse buys out the non-owning spouse’s community interest — paying cash or offsetting other marital assets (the home, retirement accounts, investments) against the value of the business interest. Second, the business interest is sold to the third-party business partner or to a third party, with the proceeds divided. Third, both spouses retain a continuing interest in the business — uncommon and generally inadvisable unless both parties can truly work together, but sometimes used in businesses with long time horizons like real estate partnerships. The business partner’s buy-sell agreement often determines which options are available.
Protecting Business Operations During Divorce
Automatic Temporary Restraining Orders (ATROs) in Nevada divorce proceedings freeze the status quo — meaning neither spouse can unilaterally alter the business’s operations, take on new debt for the business, or transfer business assets without court approval. This protects the business partner as well as both spouses from destructive actions during the litigation. If ATROs are violated, courts can impose sanctions and modify property division orders as a remedy.
Contact Hauser Family Law — Las Vegas Business Divorce Attorney
Divorces involving co-owned businesses require coordination between family law and business law expertise. Hauser Family Law works with business valuation experts and reviews partnership and operating agreements to protect our clients’ interests and reach resolution that preserves business operations and relationships where possible. Call today for a consultation.