How Your Divorce Will Affect Your Family Business

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Most family businesses usually involve an expansive investment of time and money. They may even be the main stream of income for a couple. Hence, a family business is often a source of conflict during a divorce. 

Spouses should carefully document all co-owned property to estimate their monetary value. It will help them divide their assets fairly. The process should also reveal both partners’ income streams, as it will be essential in determining who pays child and spousal support. 

Business owners must address these issues holistically because if a couple’s breakup leads to business dissolution, it may significantly impair the spouses’ financial abilities. The children and other family members who depend on the business will also count their losses. 

You need to consider the following to ensure issues regarding the family business do not complicate the divorce process:

What is the Position of a Family Business in the Marital Estate?

Every asset and debt spouses acquire in marriage is part of the marital estate. In a divorce, the spouses will divide all the marital property, but Missouri does not mandate an equal division. Instead, the state’s laws encourage a “fair and equitable” distribution of assets and liabilities by considering each partner’s needs, financial resources, and contributions to the union. 

If a couple founded or acquired a business during their marriage, it is presumed marital property. But if you owned a business before getting married, it is not likely to be deemed a part of the marital estate. 

In some instances, a spouse can claim partial ownership of a separately-owned venture if they can prove that they contributed to the business during the business, like investing marital funds in its expansion, building profitable relationships with clients, and working physically in the venture without being fairly compensated. Another avenue for partial ownership is when a spouse purchased the business before getting married but paid off an acquisition loan or other debt to acquire the business after the marriage.   

It is ideal for a couple to create legal documentation to address the ownership of a business to avoid confusion. The pre-or post-nuptial agreement will guide the couple in dividing the business during a separation. 

How to Determine the Value of a Family Business

It is essential to establish the fair market value of a business, no matter its ownership status. It will give a complete insight into the value of every asset in the family business. 

You can use any of these methods to do the valuation:

Market Value—Compare the business with similar ones sold recently to give you an insight into what a potential buyer will pay for yours. 

Calculating Assets and Liabilities—This method gives you a “book value” of the venture by summing up the value of the real estate, inventory, intellectual property, and equipment while deducting the liabilities. Sometimes this will be called “liquidation value”.  

Capitalization of Earnings—Here, you take determine the value of a business by calculating its anticipated profits based on the current earnings and expected future performation. 

How You Can Address Ownership of a Family Business During a Divorce Process

If a family venture is part of the marital estate, your spouse and you should determine how to divide it. You may wish to claim sole ownership and buy out your spouse’s share if you have been more involved in its management. This may result in you making ongoing payments to your spouse after the divorce.

Alternatively, you may sell off the business and share its proceeds. Sometimes, but very rarely, partners will keep the business as co-owners even after their breakup. 

No matter the route you choose, ensure you have experienced legal counsel to determine the best method for valuing your business based on your unique circumstances. “You should work with a reputable lawyer to guide you through the process,” says attorney Stephanie Jones of Jones Family Law Group, LLC

 

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