In a divorce, all assets and debts are equitably divided. Equitably means fairly; most often, that means equally. When it comes to your cars with similar values, you each get to keep your car; not that difficult. When it comes to dividing a business, it gets complicated for a host of reasons. Let’s discuss some of those difficulties.
Problem 1: How Much is That Business Worth?
People usually start a business to generate an income. The value of the business is on the backburner and usually is only considered when the owner retires. In some businesses, the value never is much of a consideration. For example, the business is a one-person lawn mowing company. The owner just bought a $2,000 lawnmower. Both spouses agree that its current value is $1,500 which will be divided.
Sometimes, the one-owner business owns more tools. He wants to keep them and argues “it’s just a few hundred dollars worth; they are old!”. She believes the value is nearing $10,000. If the spouses cannot agree on a value, it may be worth it to hire an appraiser. Either both parties hire their own appraiser or they agree to an appraiser and jointly share the cost of the appraiser.
If you or your spouse own a professional business, such as accountancy, IT business, or medical practice, your attorney will likely advise you to retain a professional to prepare a business valuation to provide a value of this business asset. This process is time-consuming, labor-intensive because it nearly always requires extensive discovery prior to valuation.
When you have obtained a business valuation, you and your spouse can agree to the value or you will need to obtain a ruling from the judge which will happen when your case goes to trial.
When it comes to the division of the business, there are several options.
Problem 2: Who Gets the Business?
Customarily and logically, the person who has been running the business will keep the business, but the other spouse will receive half of the value.
The business owner can buy out the non-owning spouse by paying the spouse half the value. Sometimes, this can be accomplished by awarding the non-owning spouse alternative assets, such as the marital home. If that is not possible, the judge may order a lien on the business assets and a payment plan.
Although it is often not preferred, the court may order the business sold. This doesn’t seem like a very good option because it takes away the livelihood from one of the spouses, and thus, the ability to pay child and spousal support.
In some situations, the judge may order the actual assets to be divided equitably. This scenario may happen when the business owns assets such as real estate. Each spouse is awarded a share of the real properties.
In some situations, spouses agree to equally keep operating the business. This scenario comes with significant drawbacks and risks for future conflict. You are divorcing your spouse for a reason. If you agree to this proposal, you should retain a corporate attorney to draft corporate documents. Your lawyer should also advise you on how to work as partners in the business. In addition, you should also have an exit strategy for when the business closes or if one of you decides to leave the business.
Ultimately, if you or your spouse or both of you own a business, your Judgment of Divorce should be drafted with extra care to avoid future problems. If we can help, let us know and call us at 616-285-0808.
