Divorce: How Ohio 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 all types of businesses – professional partnerships, retail businesses, internet businesses and sole proprietorships.
Some 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. At Sowald Sowald Anderson Hawley & Johnson, we only work with 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. We keep in mind tax considerations of the division at every stage, making every effort to lighten your tax obligations from the sale.
The Importance Of Getting Your Business’s Value Appraised During A Divorce
If you choose not to have a professional appraise the value of your business, then you stand to lose substantial assets in a divorce. In some divorces, an unscrupulous spouse might try to hide assets to secure a more favorable asset division settlement for themselves. If your ex knows that the business is worth more than you believe it is, they could trick you into accepting a much lower amount in the divorce proceedings than you deserve. We regularly work with a team of professionals who can provide an independent assessment of how much your business is worth. Then, we will assist you in facilitating an equitable division agreement.
How Are Businesses Valued During Divorces?
There are several methods for valuing a business during a divorce, including:
- Determining the fair market value: Appraisers evaluate the business’s assets, income and other factors and compare it to similar enterprises to determine its value on the market.
- Determining value based on the expected future income: Looking at past income, the appraiser estimates how much revenue the business is projected to earn by a certain future point.
- Determining the value of the business’s assets: By adding up the value of the business’s assets and subtracting the cost of its liabilities, appraisers can arrive at a numerical figure.
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 Does A Business’s Value Increasing Or Decreasing During A Marriage Affect The Overall Valuation?
Sometimes a business’s value goes up during the course of a marriage. This could mean that one spouse must pay the other a higher figure than expected. If the business is being valued based on projected future income, one spouse could have to pay up a high sum based on the projected increase. This would motivate the receiving spouse to request a valuation based on projected earning rather than fair market value or current business asset value. Conversely, the opposite is true if the business’s value decreased. Then, it behooves the paying spouse to request valuation based on projected future income and the receiving spouse to request valuation based on fair market value or value of assets.
How Are Businesses Divided In A Divorce?
If a couple does not have a prenuptial agreement that addresses the division of assets, then either the spouses or the court must reach a decision on how to divide the business. Some of the techniques available are as follows:
- 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 and separate property to fund the business
- Each spouse’s contribution to running the business
- Each spouse’s income, separate assets 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.