Is A Divorce Between Two Business Owners More Complicated?
A Divorce between two business owners can be more complicated. In divorce cases where there is a family owned business, in most cases, the business is an asset that would be considered part of the marital estate. When businesses are part of marital estates, it makes it more complicated to divide the assets because businesses are usually the most valuable asset that the parties own. Moreover, there are other circumstances that could affect how the business is divided, for instance, if it’s a small business such as a handyman business, it wouldn’t necessarily be the biggest asset a couple may have. But if you have a good-sized business, that’s a real valuable asset. A good-sized business makes the divorce process a bit more complicated because it has to be evaluated for its value. Also, it then has to be determined which of the parties is going to continue with ownership of the business.
It’s rare that the court would have both parties continue with ownership after the divorce is completed. So, that does make it more complicated, and usually more time consuming. When there’s a business involved, I tell clients that we should count on an extra four or five months because of the complexities of valuing their business.
How Is The Value of My Business Evaluated When It Comes To Divorce?
In a divorce, there are certain factors that are considered when evaluating the value of a business. Some businesses are easier to value than others. For instance, a handyman business probably does not have much value other than the assets that the handyman owns such as the tools, a vehicle, and some computer equipment. And, for the most part, it’d be really easy to value that type of business. Other types of businesses are complicated to value. For example, if someone owns a big manufacturing plant, then the help of valuators would need to be enlisted, and it’s generally a certified public accountant. Another valuator with specialized credentials is a certified valuation analyst or CVA. A CVA would be able to determine the value of the business.
The valuators look at tax returns, financial statements, and bank statements. They physically view the business and perform interviews with some of the key employees and owners of the business. The valuators then come up with a fair market value for the business. It’s not unusual for both litigants, the husband and wife, to each have their own expert that would come up with a value of the business. So, at times, there are competing experts and competing values. Hopefully, some middle ground can be found in regard to the evaluation, but oftentimes, it has to go to court. At court, the judge decides which of the experts is more accurate.
If I Own My Business With Other People, How Can My Divorce Impact Their Shares?
If you own your business with other people, depending on the circumstance of the business, it may or may not impact their shares if you’re going through a divorce. For example, if someone owns a business with partners and the spouse isn’t a partner, the shares may not be impacted if the husband is able to retain his interest in the business. For instance, if a husband owns a plumbing business and he has a partner, and there is a divorce between the husband and the wife, there is going to be a valuation done of the husband’s 50% interest in the plumbing company. The partner who is not going through the divorce probably isn’t impacted as long as the husband is able to retain his interest in the business, and has the resources to buy out his wife’s interest in the business. For example, if the plumbing business is worth $500,000, the husband’s interest is $250,000. The wife is entitled to half of the husband’s interest, or $125,000.
So, if the husband is able to buy out the wife’s interest, and has the resources, then it shouldn’t have any impact on the non-divorcing partner. But, if the husband does not have those resources, then it can be problematic because the husband may need to sell his interest in the business. In other words, he can’t buy out his wife, and that may cause the partner who is not going through the divorce to be in a bit of a complicated situation. The partner may need to buy out the divorcing spouse’s interest. If you are the non-divorcing partner, you may need to come up with some cash to buy out the divorcing partner’s interest.
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