For married couples who own a business, dividing up the business in a divorce can be complicated. Yet regardless of who owns the business, the value of the business will certainly factor into a property division settlement. If the business is separate property, then this may affect how a judge divides the couple’s marital property; if the business is marital property, then it must be divided in a way that’s equitable. As such, understanding the value of a business, as well as options for what should happen to a business, is essential.
Is the Business Marital or Separate Property?
If the business was acquired during the course of the marriage, it is marital property. If the business interest was acquired prior to marriage, then it may be separate property unless there were significant financial or personal contributions made by the other spouse to the business during the course of the marriage, in which case a judge will likely categorize it as marital property.
How Is a Business Valued?
There are typically three different approaches for determining the value of a business:
- Market approach;
- Income approach;
- Asset approach.
If you are getting a divorce and you need business valuation services, it is critical that you hire a professional appraiser to assist you.
What Are the Options for Dividing Business Interest in a Divorce?
Remember, if a business is marital property, then the business must be divided in a way that is equitable. There are three common strategies for doing this:
- One spouse buys out the interest of the other spouse. One very simple way to divide a business in a divorce is simply for one spouse to buy out the other’s business interest. For example, if the business is valued at $250,000 total, one spouse (who wants to continue running the business), may simply offer to pay the other spouse $125,000 – half of the business value.
- Both spouses sell the business and split the proceeds. Another simple, straightforward option for dividing business interest in a divorce is for both owners of the business to agree to sell the business, and then for the spouses to split the proceeds equally amongst themselves or in a way that is equitable (for example, one party may keep the business proceeds and the other party keeps the house).
- The parties decide to continue co-owning the business. In divorce cases where spouses are cordial or even friendly with one another, the parties may decide to keep the business and continue on as co-owners. This can prove difficult if emotions from the divorce preclude the parties from working together effectively as business owners.
Get Help with Business Valuation During a Divorce
Knowing how much your business is worth and what your options are for dividing it in a divorce is extremely important. At the Law Office of Heather M. Ward, our Massachusetts family and divorce lawyer can help you to understand the law, refer you to experienced appraisers, and advocate for your best interests during the divorce settlement process. Call today at (617) 903-8955 to learn more.