One of the most challenging aspects of some divorce cases is when one or both spouses own all or part of a business. If one spouse owns a business, how is that business treated for purposes of valuing the marital estate? Perhaps more complicated, what happens when a couple co-owns a business interest?
One Spouse Owns the Business
Hypothetically, let’s assume that one spouse has started a business during the marriage selling construction equipment. Regardless of which side you are on, the business will have to have a value placed upon it in order to arrive at an equitable distribution of the marital estate. One option is that the parties can agree as to what the business is worth. However, such an agreement can be a tricky proposition given that the owner will likely seek to place a lower value on the business than the non-owner spouse. In such an instance, a business valuation expert may need to be engaged to review the relevant financials and issue an opinion as the value of the business. Presuming there is an agreement as to the opinion of the expert, the parties will then have a solid number to work with in discussing settlement or litigating at trial.
Co-ownership of the Business
This is potentially a much more problematic situation. Presume the couple owns an alteration shop where both work and have contributed to the growth of the business. This presents a tough question: Who stays and who goes? Ideally, the parties will agree on a value of the business and one spouse will compensate the other for their interest, or put another way, buy them out. In that situation, the financial liquidity of the business will be important and it may be necessary to enter into a payment arrangement. If an agreement cannot be reached, a court may choose to award the business to one party or even order the business be sold and the proceeds divided.
CBS News has a relevant article concerning division of a business interest in the event of divorce. A very important point made by the author is that if you co-own a business, it is highly advisable to include in your corporate documents what happens in the event of a divorce. For instance, the parties can stipulate which party keeps the business, how the business will be valued, and/or payment in the event of a buyout.
The above is intended as a very general discussion of considerations that arise in the event a divorce involves the valuation and division of a business interest. We are happy to answer questions you may have concerning your particular situation. Feel free to call us at (317) 353-3600 or contact us via email if you have any questions.