A Business Owner’s Guide to Divorce

By February 12, 2020Uncategorized

Business owners confront unusual hurdles to divorce, and they need an attorney who understands how to dissolve a marriage while at the same time keeping a business up and running.

At Lawrence Law Office, we have helped countless entrepreneurs get a divorce while allowing their company to continue to flourish. We have drafted this guide as an introduction to some of the problems business owners face and invite you to reach out to our firm today for more information.

Unique Challenges for Business Owners

Any business owner trying to dissolve a marriage faces many of the same issues as anyone else. If you have children, you will need to come up with a child custody schedule and determine child support. If you have property other than your business, you will need to divide it, along with marital debts. These are complex issues, and a lawyer can help.

But business owners also face some issues that other divorcing couples do not:

  • The business might be considered marital property, which means it could be subject to equitable distribution in the divorce.
  • Business debts could also be considered both spouse’s and need to be divided as well.
  • Both spouses might work in the business; however, during and after divorce, working together is impossible because the relationship has broken down.
  • The business needs to keep operating even during divorce, which might be acrimonious.

If you own a business, either alone or with your spouse, you need to meet with an attorney.

Dividing a Business

A business, even a sole proprietorship, could be deemed marital property by a court. Generally, a judge looks at when the business was started. If it was started after marriage, then the entire business could be considered the marital property of both spouses. Even if one spouse started the business alone before marriage, the increase in value could be considered marital.

Dividing a business is a little like dividing a baby—it will die if split in two. Sometimes, the spouse who started and runs the business can exit the marriage with full ownership. This is possible if there are other assets (like a home and/or retirement accounts) that the other spouse can receive. Judges have discretion as to how they divide marital property fairly, but in many cases it really is 50/50.

Valuing a Business

If some or all of the business is marital property, then you need to properly value it. Valuation issues are difficult because there are different methods that can be used:

  • Book value. This method involves looking at the business’ accounts to determine how profitable it is. One negative is that it is simply a snapshot in time. It does not take into account whether the business can grow, and how large.
  • Comparative Market Analysis. This method involves looking at comparable businesses that have sold recently and estimating the value of your business. It is a little like a real estate agent looking at comps in your neighborhood to derive the value of your home.
  • Asset value. All business assets are assigned a value and then added together. This method can be challenging if the business is a sole proprietorship, which holds assets in the owner’s name.

These valuation methods can result in wildly disparate numbers. Depending on your goals, you might prefer one method over another, so it is vital to hire a divorce lawyer who has worked closely with business valuators.

Keeping Your Business Running

There are all sorts of challenges to keeping your business operating during a divorce. If your divorce is particularly acrimonious, then your spouse might try to sabotage the business by spreading false information about you to the public, arguing with your employees, seizing bank accounts, destroying your books, and other acts of sabotage.

Any of these actions could damage your business, and it is best to have an attorney who can help you protect yourself. If necessary, we can ask the judge to issue certain court orders that will prohibit this destructive conduct.

Buying Out Your Spouse

If your ex gets a portion of the business in the divorce, you need to decide next steps. For example, you might need to buy out your spouse’s share of the business, which could require getting a bank loan. Or you could just sell the business and take your share of the proceeds.

If you work well with your ex, then you could try to become co-owners. However, you will need certain legal protections, such as a well drafted agreement as to how the business will be run.

Contact Lawrence Law Office today. We have years of experience helping business owners get the divorce they desire. Please call to schedule your initial consultation.

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