DIVIDING FAMILY BUSINESS IN DIVORCE
The first step in dividing a family business in a divorce is determining if in fact the Court is likely to find that there is an actual "business" value to divide. Many times in a divorce case one of the spouses may be self employed. In such a case, the Court is required to examine whether the self-employed spouse is able to capitalize on this self-employed status to the extent that there is a "business" value in the spouse's sole proprietorship or LLC.
This determination turns on an examination of whether the spouse would earn a comparable amount as a "W-2" employee for someone else, doing the same work. If so, then there may not be a "business" to consider as an asset. If the spouse earns more doing the same work, by virtue of being self-employed, then this excess income constitutes an asset, which is factored into a business value in the divorce. The question is obviously more straightforward if the spouse has an interest in an entity having multiple employees or one that files corporate income tax returns.
If it is found that there is a business to consider as an asset, the business is then valued and divided by the Court using the same principals guiding the division of other types of property, i.e. real and personal property. As such, the principals regarding the apportionment of the business value as separate or marital, or some combination thereof, may be utilized by the Court. Any portion of the business value found to be marital is combined with all other marital assets and debts to fashion a fair and equitable division of the marital estate.
There are a number of different methods by which to value closely-held businesses. Depending on which method of value is utilized, and which discounts are applied and how, the same business could yield to two wildly divergent opinions of value, with each opinion being "valid" under the method applied. The Court has broad discretion to depend on any method or valuation it finds appropriate in a given case. This can mean a difference of thousands of dollars - or more- from one spouse to the other, depending on which spouse is able to convince the Court that his/her method of valuation, and resulting opinion of value, is the more appropriate in a particular case.
Sterling Law has represented many business owners and spouses of business owners in divorce matters. Call Sterling Law at (877) 923-2326 for a free family law consult. We follow up phone consults with a Case Evaluation.
At a Case Evaluation, we meet with you in person (or by phone if you are unable to come to one of our offices). After an intake interview, we hear the details of your story and your goals. We help you understand your legal rights. After we help you sort it all out, we create for you a Plan of Action identifying your Next Steps to reach your goals. We charge a flat fee of $95.00 for the Case Evaluation. Most people find that the Case Evaluation is extremely helpful. We see these potential clients lift their shoulders back and breathe a sigh of relief when they leave our office following a Case Evaluation.
After a Case Evaluation, if your Plan of Action calls for attorney involvement, you may want to hire our firm to represent you. If so, you can expect to then sign a contract and pay a deposit on your future legal expenses. We will then form your legal team consisting of a Senior Advising Attorney, an Associate Attorney, a Legal Assistant, and our support staff. The team will spring to action to begin work on your case.