If you're a business owner facing a divorce, you may be concerned about how the divorce will affect your business. After all, you've spent time and money building up your business, and its continued success is important for your future. And, at the end of the day, most people don't want to be forced into a situation where they have to sell off part of their business or end up with their ex as a business partner.
How a business is handled during a divorce depends on several factors and may have several different outcomes. To best preserve the function of your business, it's important to have a capable divorce attorney who can advise you on all of your options.
Marital Property & Divorce
An important consideration in the division of a business is to determine whether or not it is a marital or non-marital asset. When ownership of the business began, how involved your spouse was with the business, and if financials between your spouse and the business were combined all affect the determination of whether or not your business is marital property.
If you established your business before your marriage, it can make claiming your business as a separate asset easier. Additionally, if your business was set up as an LLC or a partnership, or put in a trust, you may also be able to make a case that it is a separate asset. A prenuptial or postnuptial agreement before you got married could also help to protect your business during divorce.
On the other hand, if your business was established after you got married, or if your spouse played a role in enhancing the business, it may be determined that the business is marital property. Combining business finances with marital property or bank accounts also makes it more likely that the business will be deemed marital property. if a business is determined to be a marital asset, it must then be valued.
How Is A Business Valued In A Divorce?
A business must be valued to determine how the asset will be divided. There are three primary ways to value a company in a divorce.
Assets. To calculate a company's value, you would take the value of the business assets and subtract liabilities. Determining a business' worth based on its assets is a simple formula that can get complicated quickly, however, depending on the number of assets and the ability to determine their worth.
Market Value. To determine the market value, the business will be compared to other similar businesses that have been sold. However, it can sometimes be difficult to find similar businesses in your area that are comparable.
Income. The most commonly used method to determine a business' worth, income may need to be calculated by a Certified Business Appraiser, depending on the size and complexity of the business financials. If the business is large, both spouses will typically hire their own appraisers.
How Can A Business Be Divided In A Divorce?
In an equitable distribution state, a couple's assets are divided fairly, not necessarily equally, and the amount a spouse can receive depends on a number of factors. However, depending on your ability to work with your spouse in dividing your assets, there are a few different options for dividing the business.
Buy-Out. If your spouse has been involved in the business or if it is a marital asset, you may be able to purchase their share of the business from them. Typically, a buy-out requires you to have a lump sum to give to your ex upfront or you can leverage other assets such as a family home. However, you may be able to compromise on a pay-out plan with your spouse. Alimony and child support payments may also impact a claim for part of the business asset.
Co-Ownership. Co-ownership can be a good option for both parties while allowing the business to continue operations as normal. If your divorce is less than amicable, one spouse could continue to keep their interest while being an absentee owner. However, this isn't an option for most divorced couples without ample respect and trust.
Selling. Outright selling the business can often be the cleanest method for dividing a business. However, selling a business can take months, and depending on the personal investment of one spouse, it may not be a reasonable option for both parties. The condition of the economy is also a factor in determining if you'd be able to receive a fair payment for the business.
How Can Divorce Attorney Help?
The dissolution of a marriage is often emotional and personally challenging. And that's before the actual legal proceedings are factored in. A divorce lawyer can take some of the burdens off your shoulders during a divorce, especially if multiple assets are involved. Additionally, established divorce attorneys have access to a network of professionals who can aid in the valuation process so that you don't have yet another thing to worry about. To find out more about how we can help you during your divorce, contact us today for a free case consultation.