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How can you protect your business during divorce?

On Behalf of | Jul 23, 2020 | Civil Litigation |

Divorce is tough no matter the circumstances. But yours may feel doubly so if you own a business. You will want to protect it at all costs, especially if your spouse wants to stake a claim to it. Doing so comes with complexities, which you will not want to navigate alone.

Valuing your business

Before you and your spouse divide your business, you will need to have it valued. You will want to hire your own private evaluator who will give you an impartial account of your business’ worth. They will use one of three approaches to value it, being:

  • Asset-based approach: Accounts for your business’ assets and liabilities but not for its intangible value
  • Income-based approach: Accounts for your business’ income, expenses and capitalization rate (projected growth)
  • Market approach: Accounts for the price of recent sales of businesses like yours

Evaluators often use the income-based approach to value your business. Not only does it account for its current financial situation, but it also provides an estimate of your profitability down the road. The other two approaches do not account for this.

Keep in mind that your spouse may hire an evaluator, too. And their findings could differ from yours. If they do, you will likely need to arbitrate, mediate or litigate this dispute to reach consensus.

Understanding your options

Business owners usually divide their enterprise in one of three ways during a divorce. Like many other business owners, your spouse may hold a share in your business. If they do, you will likely want to buy them out. Doing so will lead to greater expenses at the outset. But you will retain full control of your business after your divorce. Alternatively, you can keep ownership of your business if your spouse will accept other marital property of equal value in exchange for it.

Yet, you may not have the cash or liquid assets to buy your spouse’s share of your business. Or, you may have a difficult time agreeing on fair value. In these cases, you may want to consider selling your business and splitting the proceeds equally. This option, though, is contingent on finding a third party who wants to buy it.

You may also be open to the idea of co-owning your business with your spouse. This arrangement does not mean they will hold an equal stake in it. Nor does it mean your spouse will have decision-making clout unless they are integral to its operation. What it does mean is that they will receive a certain percentage of your business’ profits for as long as you run it – or for the length your divorce decree stipulates.

Reaching an agreement

You will want to protect your business at all costs during your divorce. But doing so alone may prove difficult when your spouse is seeking a share. An attorney with family and business law experience can help you work to retain ownership.