Divorce and Business Taxes: Key Things Business Owners Should Know

Critical Tax Considerations for Business Owners Facing Divorce

Divorce becomes more complicated when you are a business owner — especially when it comes to taxes. Your business may be part of marital property, and decisions made during the divorce can affect ownership, valuation, and taxable income. Here are the essential tax points every business owner should understand.

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1. Is Your Business Marital Property?

Depending on when and how your business was formed, it may be considered marital property.

If so, part of the business may need to be transferred or valued for the settlement.

Tax Note: Transfers made under a divorce agreement are generally non-taxable, but proper documentation is required.

2. Business Asset Division Has Tax Consequences

• Dividing or transferring:
• Shares
• Business cash
• Equipment or property

Businesses can affect depreciation, basis, or capital gains later.

Tip: Understand how each asset transfer affects your future taxes.

3. Your Taxable Income May Change

Divorce often affects business income and personal taxes:

• Alimony (not deductible for payer/post-2019)
• Changes in payroll or profit distributions
• New filing status (single or head of household)

Recalculate estimated taxes to avoid penalties.

4. Ownership or Structure Changes Affect Tax Filings

Removing a spouse as a partner or shareholder may require updates to:

• Partnership agreements
• S-Corp shareholder records
• LLC operating agreements

These must match IRS and state documents to avoid filing issues.

5. Business Valuation Impacts Future Taxes

A divorce-related valuation determines the tax basis of your business.

This affects

• Future capital gains
• Buyout tax treatment
• Depreciation adjustments

A proper valuation helps avoid tax surprises later.

6. Clean Books Are Essential During Divorce

Accurate financials help with

• Business valuation
• Settlement negotiations
• Tax reporting

Clean books reduce disputes and legal costs.

Divorce brings emotional stress, but for business owners, it also brings significant tax and financial decisions that can shape the future of your company.

By understanding how divorce affects business ownership, income, valuation, and tax obligations, you can minimize risk and make informed decisions.

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Choosing LBS Tax means working with experienced tax professionals who understand the full tax landscape facing today’s small business owners. As a full-service accounting firm, they go beyond basic tax preparation to deliver strategic business tax consulting tailored to your financial situation. Their expertise spans business tax, individual taxes, income tax accounting, and accurate tax returns, all while staying compliant with evolving tax laws and tax regulations. From entity selection, entity classification, and expense planning to managing payroll taxes, sales tax, and complete payroll services, their team ensures every detail supports healthy cash flow and long-term growth. LBS Tax also provides reliable bookkeeper support, precise financial reporting, detailed financial reports, profit and loss statements, and forward-looking cash flow projections to help owners make informed decisions. With added services like accounting setup, accounting software training, and dependable audit support, clients gain clarity, control, and confidence in an increasingly complex tax environment—making LBS Tax & your tax endeavors a trusted partner for sustainable financial success.