How Is a Family Business Handled During a Divorce?

 Posted on December 10, 2019 in Divorce

During a couple's marriage, they may start a business, either together or separately. If the couple chooses to get a divorce, they must address how ownership of this business will be handled. As with other assets, interests in a family business must be addressed as part of the equitable distribution of marital property. To ensure that business interests are divided fairly, a business valuation may need to be performed to determine the actual value of business assets. There are various approaches to this process, so it is important to understand the differences to determine which one is appropriate for your company. 

Business Valuation Methods

Multiple methods can be used to estimate how much a business is worth. One way of determining a business's value is by looking at the assets owned by the business. An asset-based approach is often better for larger companies that have business assets separate from the owners' personal assets. In smaller companies, a person's personal and business funds often overlap, which can make this approach more difficult. There are two asset-based valuation approaches that are typically used by business valuators: going concern, in which a business's liabilities are subtracted from the net balance of its assets, and liquidation, which looks at the potential profits earned by selling off all of the business's assets. 

Another way of determining the value of a business is by comparing it to other similar businesses that have recently been sold. This works best when there is a market of similar businesses to compare their values. For example, if a married couple owns a bookstore, a business valuator could look at the sales of similar-size bookstores and determine how much the store is worth based on market value. 

Once the value of a business is determined, each party must decide how they want to be involved with the business after the divorce. Here are three ways to divide a business owned by a divorcing couple: 

1. It may not be for everyone, but it is possible for divorcing couples to continue co-owning a business and managing it as they did while married. If the ex-spouses are able to continue working together as business partners, this can be the least complicated way to ensure that the business can continue operating following divorce. 

2. One spouse can keep the business and buy out the other’s spouse’s share of its value. If a spouse does not have enough funds to buy the other spouse's share of the business, a payment plan may be set up. 

3. If neither spouse wants to keep the business, then the couple can go through the process of selling it outright, and the profits realized from the sale will be part of the marital estate divided during the divorce. 

Contact a Schaumburg Divorce Lawyer

If you and your spouse own a business, either together or separately, you will need to determine how to address ownership of this business during your divorce. When you work with the knowledgeable Rolling Meadows asset division attorneys at A. Traub & Associates, we can utilize CPAs and professional business valuators to ensure that your business is valued properly, and we will help you reach a resolution to your divorce that protects your business and meets your financial needs. Call our office today at 630-426-0196 to schedule your initial consultation.

Sources:

https://www.forbes.com/sites/catherineschnaubelt/2019/03/15/how-to-divide-the-family-business-in-a-divorce/#6909946a42fe

https://www.thebalance.com/business-valuation-methods-2948478