Small business owners wonder whether the company will survive a divorce. Part one of this post covered ways you can protect your business long before you contemplate divorce. It also discussed the concepts of separate property and marital property and how courts categorize your business. Finally we touched on how courts in different states treat the division of marital property. In this post, we’ll get into the details about business valuation and division.
When it comes to valuing your family business, a team approach is best. Your divorce attorney is the team captain. Your attorney is your mouthpiece in dealings with the court and your spouse’s lawyer. Your lawyer’s job is to get the best possible result for you in the divorce.
The second member of your team is a business appraiser. Your attorney will help you find a qualified appraiser whose opinion your local courts will respect. The appraiser will analyze the financial records for your business, compare it to similar businesses, and assign a value to it. If the business includes separate property, the appraiser may also distinguish the premarital value from the marital value.
Your team should also include a financial planner or an accountant who will advise you on the tax consequences of different property division scenarios, help you determine whether you can afford to keep and operate the business, and help you calculate your post-divorce budget.
Once you know how much of your business you own, how your state divides marital property, and how much the business is worth, you must decide, in consultation with your team, what you want and how to get it. If you and your spouse are better business partners than romantic partners, you may be able to operate your business together after the divorce. One option is for the two of you to continue to own and run the business.
Realistically, this solution doesn’t work for most couples. Another option is for you to keep the business and pay your spouse for his or her share of it. If you choose this option, you should make it part of the deal that your spouse can’t start a new business that competes with you. You could also let your spouse keep the business and pay you off.
Another alternative is to sell the business and split the proceeds of the sale with your spouse. Again, the buyer will expect you to agree not to start a new, competing business for a specified period of time after the sale.
Divorce is a challenge when there’s a family business involved. However, with careful planning, a sound strategy and an expert team of advisors who have your best interests at heart, your small family business can survive and support not only you, but future generations of your family.
Forbes: “Five Steps a Woman Can Take to Help Her Family-Run Business Survive Divorce,” Jeff Landers, Nov. 15, 2011