Divorce is always a complicated affair, but when there is a family business involved, even more complex issues can arise. Both parties to such a divorce have significant property and other interests related to the value and operation of the business that must be accounted for in the divorce settlement or trial.
How much is the business worth?
An important issue upfront is the valuation of the business. This can be a tricky question that most often will require the opinion of an expert business evaluator to review the business records and consider the market forces impacting the business’s value. Even deciding how to approach the valuation question itself can be complex.
For example, should the value of the business be the price it would sell for in the marketplace as a going concern? What if part of the business value is the participation of the owner him or herself? Sometimes the goodwill generated by an owner’s presence in their community or by their unique skills adds unique value to the business that would disappear if the business were sold. Placing a dollar value on owner goodwill can be tricky, but crucial in some situations.
Alternatively, should the business be valued by combining the appraised value of the inventory, buildings, real estate and other individual assets of the business as if the business were going to be wound down and closed?
What if there are co-owners other than the spouses in the divorce such as relatives, friends or business partners? Will they buy the spouse’s share? Will the spouse continue to own his or her interest after the divorce and will that generate income?
Business valuation questions are obviously complicated and will ultimately depend on the exact nature of the business, the role of the owner, plans for the business after the divorce, co-ownership with people outside the marriage, provisions of pre-marital or post-marital agreements on the topic, business contracts like buy-sell agreements and many other factors.
Overarching these valuation issues are decisions about whether the business as an entity will survive the divorce and if the owner will still be involved afterward. The answers will be relevant to how the nonowner-spouse will get their share of financial interest in the business in the divorce, as well as whether it will provide future income to the owner-spouse that could be a source for child support and alimony payments.
A knowledgeable family lawyer can provide information and guidance about these issues ahead of divorce negotiations to settle them quickly. Or, if necessary, an attorney can provide advocacy in court should a judge need to make the final decision.