September 05 , 2017

Divorce and Business Value

Getting a Divorce? What It Means for Your Business

Divorce and a Business Valuation unfortunately can greatly impact your negotiations. When you own a business, you will need to understand business value to negotiate a settlement in your divorce. In some circles, it is referred to as a special circumstance. It’s special in part because unlike most things in financial planning, it represents the destruction of a plan rather than the construction of a plan.

There are typically issues of alimony and child support. Property, retirement plans, career assets and a house might have to be valued and divided. 

And in some cases, there might even be a family business that has to be valued and divided. When it comes to dividing a family business (or a house for that matter), you typically have three options:

  1. One spouse keeps the business/home by buying out the other’s interest.
  2. Both spouses continue to own the business/home.
  3. The business/home is sold and proceeds are divided.

Whoever is ‘in’ the business wants the business valuated a low price, so the other party can walk away with a smaller amount. There are two ways to look proactively at this.

  1. A business operating agreement typically doesn’t address the divorce, but sometimes it will. Look into the operating agreement to see if there is a specific clause to address divorce
  2. Examine the business buy/sell agreement. Divorce is typically addressed in this document. For instance, partnerships, such as CPA or law firms, typically have clauses that state that a partner will buy out spouse’s share at a pre-determined price and term.

If you are going through a divorce and you don’t have the aforementioned agreements in place, you should hire a “great” valuation specialist. Each party will present the case of how it arrived at the value and how to buy the other party out.