Divorce: How Family Businesses Are Valued And Divided
Property division decisions become especially heated when marital assets include a family-owned business or significant business interests. Both sides want the division to be done with great care to maximize the value of the business.
At Sowald Sowald Anderson Hawley & Johnson, we are experienced in valuing and dividing every kind of business entity – professional partnerships, retail businesses, internet businesses and sole proprietorships.
Division solutions for divorce or dissolution include:
- Co-ownership, so the business can continue to function
- Buyout, in which one party purchases the business from the other
- Sale, in which the business is put on the market and the proceeds are split
If the business existed before the couple married or if it was purchased with nonmarital resources, then it may not be subject to division.
Your business valuation is only as reliable as the appraiser chosen to do the valuing. Sowald Sowald Anderson Hawley & Johnson works with only the most experienced and most reputable appraisers, ensuring that the valuation arrived at is accurate and represents your interests. The final valuation will take into account every factor involved in a business’s true worth, including goodwill.
Tax considerations of the division are considered at every stage, with every effort made to lighten your tax obligations from the sale.
How Are Businesses Valued During A Divorce?
There are several methods for valuing a business during a divorce, including:
- Determining the fair market value of the business
- Determining value based on the expected future income
- Determining the value of the business’s assets
The most common methods are the market approach and the income approach. If these methods do not work, however, the asset approach is also available.
How Are Businesses Divided In A Divorce?
If a couple does not have a prenuptial agreement that addresses business division, then the couple or the court must reach a decision on how to divide the business. Some of the techniques available are:
- The spouse who owns the business gives the other spouse marital assets equal to the value of the business
- The owner spouse sells their share of the business and divides the proceeds with the other spouse
- The spouses continue to own the business jointly
The tactic used depends greatly on the unique company at hand. You and your attorney should try to use the method that benefits you based on your financial needs and your goals for operating the business.
What Do Courts Consider When Dividing A Business?
If you and your spouse do not reach a compromise out of court, a family law judge will issue a verdict. Courts consider a variety of factors such as:
- Whether one spouse owned the business before the marriage
- The share owned by each spouse
- Whether one spouse contributed separate assets to fund the business
- Each spouse’s contribution to running the business
- Each spouse’s income, separate assets, income and earning potential
As you can see, judges have a great deal of leeway when it comes to dividing businesses. It is crucial that you have a divorce attorney to advocate for your best interests and ensure that no one takes advantage of your rights.