Divorce brings with it not only the division of a family but also the division of assets. The break-up of a family and all that implies is difficult. The division can be made even more tricky when one of the spouses owns or is part owner of a business. Having an experienced attorney on your side who knows family law, how to use the tools available to help with the division of businesses such as a business valuation, and is experienced with the court system will be beneficial to you if you are contemplating divorce and you or your spouse own or are part owners of a business.
It will be key to first determine if the business is separate property, community property, or mixed characterization. Separate property is a property that is owned by one spouse before marriage, something inherited, any gifts received, or monies or other assets received from a personal injury settlement related to pain and suffering. A court cannot divide separate property. Separate property is not considered in the division of the community property and is returned to the spouse who is the owner of the separate property. Sometimes there can be issues if any separate property has been commingled with the community property. Community property is generally any property acquired by a couple during their marriage. All property is presumed to be community property unless it can be proven that it is separate property. The burden of proving something is separate property falls to the person trying to claim the separate property as theirs. In situations where separate property has become commingled with community property, an expert may be needed to help prove this. Community property is considered equally owned by both spouses and is therefore subject to division during the divorce proceedings.
If the business in question is determined to be separate property, then it is not subject to division during the divorce and it will go to the spouse who separately owns it. If the business is determined to be community property or at least part community property it will need to be divided and the non-owner spouse will need to receive their share of the interest of that business. Usually, this involves one spouse maintaining ownership of the business and the other one receiving something else comparable because it would not make sense to literally divide the share between two divorcing spouses. This buyout could include things like the non-owner spouse keeping marital residence or a higher share of the proceeds from the sale of it. The buyout could also be achieved by the non-owner spouse receiving some kind of payout through cash, retirement, or spousal maintenance payments.
For the business to be divided, the value of it must be determined. It can be very challenging to determine the fair market value of a business in a world that is constantly changing. It is important to gather and examine all business documents that define the ownership of the business organization. It is also important to obtain all of the documents related to the daily operation and financials of the business. Often one spouse will have more access to these documents than the other spouse. The spouse missing the information can request the documents through discovery if they are not made freely available to the spouse. Once the pertinent documents are obtained and made available for examination it is a good idea to hire an expert to help determine the value of the business or business interest.
A business valuation is a key tool used by knowledgeable attorneys in a complex, high net worth divorce case that will require the division of a company. Business valuations are necessary to determine how much the ownership or the percentage of the ownership is worth in real dollars and future income and options. There are a lot of things the business valuation will consider. A business valuation will consider things like the company’s management, capital structure, or the market value of its assets. During the business valuation, the analyst may look at goodwill and future earning capacity. Each thing the analyst considers will need to be assigned a dollar value, which is no simple task. The business valuation report can be used in negotiations, mediation, or trial. Hiring a competent expert is important because you want it done right. You want to hire someone who knows the market and your industry. They should be familiar with companies similar to yours and what makes you stand out among them. Each company is unique and several things combine to determine the success and value of a business. Hiring the right expert is key. An experienced family law attorney will be able to help you find the right business valuation expert to use.