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Divorce for Business Owners: What to Know Before Splitting Assets

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Business Owner Divorce? Avoid Tax Surprises with the Right Strategy

A divorce is difficult enough—but for business owners, the stakes are even higher. Your company may be your largest asset, and dividing it incorrectly can lead to serious tax consequences. If you’re facing a business owner divorce, now is the time to protect your finances with proper planning and valuation.

At THF (Thomas Howell Ferguson CPAs), we’ve guided countless clients through divorce for business owners, ensuring they understand tax liabilities and long-term cash flow risks. Here’s what you need to know to avoid mistakes that can follow you for years.

How the IRS Handles Business Transfers in Divorce

Many ask: Do I owe taxes if I transfer business assets to my ex-spouse?

The IRS allows tax-free transfers of most assets, including cash and business ownership interests, under certain timelines:

  • Before the divorce is finalized
  • At the time of divorce
  • Up to 1 year after divorce, or 6 years if the divorce decree requires it

👉 However, once your ex sells their share of the business or receives income from it, they’ll pay taxes based on your original basis. This is why strategic planning is essential when structuring ownership changes during a divorce business owner scenario.

Business Owners and Divorce – Why Valuation Matters

A core issue in any business owner divorce is accurately valuing the company. This becomes especially important when:

  • One spouse is active in the business, and the other is not
  • Ownership is being divided in place of other assets (cash, home, retirement)

A proper valuation should account for:

  • Tangible and intangible assets
  • Potential future tax liabilities (such as deferred gains or unreported income)
  • State-specific laws regarding marital property

Whether you’re negotiating directly or through legal counsel, a professional valuation backed by tax-aware advisors is critical.

Don’t Overlook Hidden Tax Liabilities

Many business owners assume an even split of assets means a fair deal. But that’s not always the case.

For example:

  • An appreciated business interest may carry future capital gains taxes
  • Receivables or inventory may result in ordinary income for the recipient
  • Unequal basis between assets can create disproportionate tax burdens

To avoid these traps, work with a CPA for business taxes near me who understands how to apply IRS transfer rules and protect your long-term wealth.

Non-Tax Factors That Can Impact Your Business Post-Divorce

Divorce settlements often go beyond spreadsheets. Some key factors to prepare for:

  • Cash flow strain from buyouts or alimony obligations
  • Loss of control if ownership is divided
  • Privacy issues, as court filings may disclose sensitive financials

The team at THF CPAs works closely with legal counsel to address these non-tax considerations—such as structuring payouts or using confidentiality agreements.

Final Thoughts – Plan Early, Protect Everything

If you’re facing a divorce for business owners, planning early can make the difference between a fair outcome and a costly mistake. The right strategy can:

  • Minimize tax liability
  • Protect your ownership stake
  • Safeguard your business’s financial health for the future

📞 Contact THF CPAs today or visit www.THF.cpa to speak with a tax advisor who understands the complexities of business owners and divorce.

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