Divorce Help 101
Business Ownership
Businesses or business interest of any type are generally considered marital property. As with all other forms of property, the business or the interest must be divided.
With a business (in this article, I will use the term business to refer to both individual businesses or business interest) a value generally must be attached to the business. This can sometimes pose a problem. For instance, let’s use the example of a service oriented business where one spouse does all or the bulk of the work. Let’s further assume that other than some office equipment the business owns no assets and likely leases the location from which it operates. In a business such as this, the actual value of the business may be low, even perhaps nothing. The reason for this is that the business is entirely the spouse that operates it. If the other spouse came into the business lacking the requisite skills possessed by the other spouse then attempts to operate the business would be very difficult.
Let’s examine another scenario. Say there is a business entity that owns property and is organized as a business entity under the laws of the state in which it does business. Assume further that there are shares of the business owned by a set number of individuals and that each share is worth a quantifiable amount. In this case, the value spouse’s ownership interest in the business is easily attainable by determining how many shares the spouse owns and how much each share is worth.
Or, take the example of the closely held corporation, perhaps an S-corp, where the spouse owning the interest has 33% of the interest with the remaining interest being owned by two relatives.
Each of these scenarios creates different obstacles for determining the value of the particular business. In the first scenario the spouse owning the business will likely be reluctant to have any value assigned to the business and will argue the business is worthless. The spouse seeking the interest will argue that the cash flow should be used to determine the value. In the second scenario the spouse owning the interest will likely want to diminish the value of the business based on some factor. The spouse seeking compensation for the interest may not want to have the actual business, but the value of it. In the third option the spouse owning the interest may want to give the other spouse his interest, but as the other spouse could never carry a majority in control of the company, the minority value could end up being worth little to nothing.
It is possible to hire an expert to determine the value of the business, but the valuations can be time consuming and quite costly. However, the use of these experts may be required.
In short with businesses it generally comes down to the proposition that the spouse who holds the interest in the business may be best served by quickly coming to the table to negotiate a fair and equitable buyout price for the business which they own. Likewise the spouse who is seeking an interest in the business can best serve their position by also entertaining such negotiations. While this may result in an outcome that is more than the interest owner may want to pay and less than the other spouse may want to receive, in the end this approach will generally save in time and attorneys’ fees and will have the least impact on the business.
Disclaimer
With a business (in this article, I will use the term business to refer to both individual businesses or business interest) a value generally must be attached to the business. This can sometimes pose a problem. For instance, let’s use the example of a service oriented business where one spouse does all or the bulk of the work. Let’s further assume that other than some office equipment the business owns no assets and likely leases the location from which it operates. In a business such as this, the actual value of the business may be low, even perhaps nothing. The reason for this is that the business is entirely the spouse that operates it. If the other spouse came into the business lacking the requisite skills possessed by the other spouse then attempts to operate the business would be very difficult.
Let’s examine another scenario. Say there is a business entity that owns property and is organized as a business entity under the laws of the state in which it does business. Assume further that there are shares of the business owned by a set number of individuals and that each share is worth a quantifiable amount. In this case, the value spouse’s ownership interest in the business is easily attainable by determining how many shares the spouse owns and how much each share is worth.
Or, take the example of the closely held corporation, perhaps an S-corp, where the spouse owning the interest has 33% of the interest with the remaining interest being owned by two relatives.
Each of these scenarios creates different obstacles for determining the value of the particular business. In the first scenario the spouse owning the business will likely be reluctant to have any value assigned to the business and will argue the business is worthless. The spouse seeking the interest will argue that the cash flow should be used to determine the value. In the second scenario the spouse owning the interest will likely want to diminish the value of the business based on some factor. The spouse seeking compensation for the interest may not want to have the actual business, but the value of it. In the third option the spouse owning the interest may want to give the other spouse his interest, but as the other spouse could never carry a majority in control of the company, the minority value could end up being worth little to nothing.
It is possible to hire an expert to determine the value of the business, but the valuations can be time consuming and quite costly. However, the use of these experts may be required.
In short with businesses it generally comes down to the proposition that the spouse who holds the interest in the business may be best served by quickly coming to the table to negotiate a fair and equitable buyout price for the business which they own. Likewise the spouse who is seeking an interest in the business can best serve their position by also entertaining such negotiations. While this may result in an outcome that is more than the interest owner may want to pay and less than the other spouse may want to receive, in the end this approach will generally save in time and attorneys’ fees and will have the least impact on the business.
Disclaimer
