Divorce:

Businesses

Courts understandably favor giving the family-owned business to the spouse who runs the business. In exchange, the other spouse could get other assets, for example, the family home or bank accounts.

Obviously, the situation is more complex if both spouses are involved in running and managing the business.  One potential way of dealing with this, similar to what is sometimes done with homes, is setting up the right to buy, and alternatively giving each spouse the opportunity to take advantage of it.  Also similar to dealing with homes, if both spouses fail to buy the business, there may be a forced sale followed by a division of the profits.  However, courts undoubtedly prefer to give an on-going business to one of the spouses, rather than dissolving it.

Also, if the court believes that the couple can continue to work together, despite getting divorced, they may be allowed to continue as business partners, even though they are not marital partners. 

Determining the value of a business can be quite complex. As a small business, obviously there is no value readily found on a stock exchange. If the business is large enough, it may be worthwhile to hire experts such as accountants or business consultants to appraise the business, assuming the value of the business is not clear. Conversely, if the business is small or clearly does not have a significant positive value, it is probably not worth the time and money to thoroughly evaluate it.

There are several places one can look when trying to determine the value of a business; obviously the first is its financial statements, regarding the business's assets, liabilities, income, and expenses. Sometime it is even better to look at tax returns and checking account records.  Another possible source is loan applications of the business (or of the owner of the business). Because businesses and individuals may make liberal statements about income and assets when seeking a loan, these can be very useful to the spouse of the business owner when the spouse wants to show that the business is worth more than the business owner claims when divorce is at issue.

One of the most helpful ways to determine the value of the business is if there has been a recent offer, made in good faith, to purchase the business.  In the same vein, information concerning the purchase of a similar businesses is also useful.

Cash businesses can be particularly hard to value because it is easier for the owner tries to hide income. One way to indicate that the business is worth more than the owner is saying is to compare the declared income with actual expenses over the past few years; a discrepancy here is a strong indication of hidden income.  Another possible source of this type of information is a disgruntled former (or even current) employee of the business. Someone, unhappy with the boss for whatever reason, may be willing to pass on information about how much money really is made and what the expenses are.

In the event that the spouse who is not the business owner can provide proof about hidden income or inflated expenses, this may be the basis for a greater award of other property, as well as potentially higher spousal and child support.

It should be noted that when attempting to prove that income is greater than what the other party says it is, there may be other explanations for the added funds. If the business owner has been meeting family expenses with loans that need to be repaid, the funds from those loans would NOT be a basis for a larger award of property, alimony, or child support to the other spouse. In fact, the other spouse may receive a lesser amount of property, alimony and child support since the business owner is likely to be saddled with the debt that must be repaid.

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