A family business can be one of the more complicated assets to address during a divorce.
A business may involve ownership interests, income, employees, debt, future growth, and other people who depend on the company. One spouse may own the business, both spouses may work in it, or one spouse may have contributed without having a formal ownership interest.
Understanding the value of the business and how it fits into the larger financial picture can be an important part of the divorce process.
Is the Business a Marital Asset?
Whether a business interest may be considered in the division of marital property depends on the facts of the case.
Questions may include:
- When was the business started?
- Was it created before or during the marriage?
- Did marital funds contribute to the business?
- Did either spouse work for the business?
- Did the business increase in value during the marriage?
- Are there other owners or agreements that affect ownership?
Even if only one spouse’s name appears on the business documents, that does not necessarily determine how the business will be treated in divorce.
Why Business Valuation Matters
Before decisions can be made, the parties may need to determine what the business is worth.
Depending on the company, a valuation may consider:
- Revenue and profitability
- Assets and liabilities
- Cash flow
- Ownership interests
- Market conditions
- Goodwill
- Future earning potential
Business valuation experts or accountants may be helpful when a closely held company or significant ownership interest is involved.
Business Income and Business Value Are Different
A business owner may receive compensation through salary, distributions, bonuses, or other forms of income.
That income may be relevant to child support or alimony, while the ownership interest itself may also need to be valued as an asset.
Because the two issues can overlap, a careful financial review may be necessary.
What Happens to the Business?
Dividing a business does not necessarily mean dividing the company itself.
Possible outcomes may include:
- One spouse keeps the business and buys out the other spouse’s interest.
- One spouse keeps the business while the other receives different marital assets.
- The business is sold and the proceeds are divided.
- Both spouses continue to hold an interest for a period of time.
The goal may be to address each spouse’s financial interest while allowing the business to continue operating.
Keep Financial Records Organized
Business records may become important during the divorce process, including:
- Business tax returns
- Profit and loss statements
- Bank statements
- Payroll records
- Ownership agreements
- Loan documents
- Corporate or partnership records
Keeping complete and accurate records can help create a clearer picture of the business’s income, value, and financial condition.
Getting Help With a Business During Divorce
A divorce involving a business can raise complicated questions about valuation, property division, income, and support.
At Fleischer Law Solutions, we help clients address complex financial issues in divorce, including business ownership, asset division, and the use of financial experts when appropriate.
If you or your spouse own a business and have questions about how it may be treated in a divorce, contact Fleischer Law Solutions here to schedule a consultation.