Property Division Even Tougher When A Family Business Is Involved

November 25, 2011

Property Division Even Tougher When A Family Business Is Involved

Apart from child custody, property division is often one of the most contentious aspects of a divorce case. When the property in question is a family business, the situation gets even stickier.

Just like homes, cars and investments, family businesses are, in most circumstances, marital property that is subject to division during a divorce.

This is true even if the business was a sole proprietorship or if only one spouse was involved in running it. The law generally assumes that the other spouse contributed to the success of the business by raising children, maintaining the home or otherwise providing support for the business owner.

Experts recommend against couples continuing to run a business together after a divorce. Rather, they generally suggest one of two options: either one spouse continues to run the business while the other gets bought out or the couple sells the business altogether and splits the proceeds.

Valuation Is the Hardest Part

Before a business can be divided, the couple must agree on its value. Unsurprisingly, they are rarely able to do this on their own. Divorce lawyers report seeing two common "types" in these cases -- the first is a business owner who tries to argue the company is worth nothing in order to avoid paying the other spouse. The second is a spouse who tries to argue that the company is the "next big thing" in order to take as much as possible from the person keeping the business.

These attitudes don't do much but give divorce lawyers more billable hours. Ultimately, a judge will end up making the valuation decision.

Judges don't have a lot of free time to think about all the aspects of a business and then make an equitable split, so usually judicial divisions will be rough-hewn.

A better way to approach the situation is to work with experts to value the business before entering into divorce negotiations. There are many different ways to value a business, and owners are wise to choose the method that best suits their company. Some will use a "fair market value" method that treats the business as if it were for sale on the open market -- the business's value, then, is its hypothetical sale price. Others prefer a "capitalization of earnings" method, which treats the business not as a piece of property but rather as a stream of incoming revenue.

Divorce lawyers report seeing the best results when business owners bring in outside experts. If you own a business and are going through a divorce, consult with your in-house accountants and then bring in experts such as financial planners, CPAs and business lawyers.

Then, be sure to hire an experienced divorce attorney who will fight on your behalf.

Article provided by The Law Offices of William P. Burns, Jr.
Visit us at http://www.attorneywilliamburns.com/