Dividing a business is hard to do. Especially during a heated divorce. This is why it is very important to have an experienced divorce attorney who has expertise in these types of complex divorce cases. You will want to make sure that no stone is left unturned so that you aren’t short changed by any decision that you or the courts make. The number of small businesses has increased over the years-and so has the number of business assets in need of allocation or division in divorce proceedings. This can make a divorce much more complex.
There are three scenarios that can typically occur when dividing a business in a divorce:
- Most often: The business is awarded to the spouse with the greater involvement and the other spouse is compensated.
- Sometimes: The court can order the business to be sold and the proceeds divided.
- Rarely: The business continues to be jointly operated by both parties.
Valuation And Compensation For Business Assets In A Divorce
In most cases, one spouse is substantially more involved in the business operations than the other spouse. In such cases, the court is most likely to award the business to the spouse who has the greater involvement.
Because it is most likely for a court to award the business to one spouse, the resulting issue in such cases is how to compensate the other spouse for his or her share of the business. In order to do this, the court will need to determine the value of the business interest that is being awarded to one spouse.
Because most marital businesses are small businesses, business valuation is frequently a complex issue. Most are not publicly traded on a public stock exchange (where the value of the shareholder interest can be readily ascertained). This means a small business will need to be valued by a competent financial expert who is familiar with valuations in divorce situations. Experts who are experienced in divorce valuations usually provide a more accurate picture by excluding discounts that are not appropriate for divorce situations. Your divorce attorney will most likely have relationships with the experts who can competently and properly evaluate your business value.
Sharing Small Business Assets In A Divorce
In cases where the spouses have substantially equal involvement in the business operations, the court may still decide to award the business to one spouse or have the spouses continue to jointly own and operate the business. In order for the court to determine that ongoing joint ownership and operation of a marital business is a good idea, both parties have to demonstrate that their involvement is important to the business and that they will be able to continue to work together as business partners even though they will no longer be married. This is extremely rare.
Selling The Small Business
The court can also decide to order the business sold, and may be inclined to make such an order if: a) neither spouse wants the business, or b) one or both spouses want the business but there are insufficient assets and income to fairly compensate the spouse who would have to leave the business. The court typically would not favor a forced sale of a viable business operation; it would order a forced sale in limited situations.
Your Divorce Attorney is Important for Valuation
The valuation process can be lengthy and costly in addition to being complex. It is important to work closely with divorce lawyers who are experienced in this area. It may be that a business has not generated sufficient income and/or does not have sufficient assets to warrant investing substantial funds in an expert valuation. An experienced divorce attorney will be able to assist in making such a determination.
Securing an accurate small business valuation is important-especially when one spouse is relying on the valuation to receive an equitable distribution of other property to compensate for the business being awarded to the other spouse. Once the value of the business is determined, the spouse who is not being awarded the business will be awarded a greater share of other assets in order to compensate for his or her marital share of the business.
As you can see these are very complex divorce issues that require an experienced divorce attorney who have connections with small business valuation experts. Call our law offices today at any of our convenient locations and get a free consultation.
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