Dividing property in a divorce can be complicated but have long-term financial consequences. A spouse’s ownership or interest in a business may also undergo property division under certain circumstances. When this occurs, a proper evaluation is necessary.
Entitled to business interest
Whether a spouse is entitled to any ownership in their former spouse’s business and how large that ownership should be is a complicated issue. Many factors are evaluated.
These claims are typically stronger if the spouse used shared marital money to invest in the business after marriage. A spouse who assisted with the business by performing bookkeeping, serving as a receptionist, or even selecting office furniture may also have better claims.
Claims are weaker if the spouse started the business before marriage and used separate funds for investment. A prenuptial or postnuptial agreement may also cover a spouse’s entitlement to their former’s spouse’s business and the size of their interest.
Business evaluation
An accurate business valuation is essential. The spouse who owns the business may try to keep the valuation as low as possible to give up the least amount of money.
Do not assume that the business has no value. You may have a substantial business interest if, for example, your spouse is a consultant, contracted salesperson, or freelancer.
Several factors help determine the value of the business. These include the company’s finances, value and recognition of its brand, current contracts, real estate building, equipment, and proprietary information such as patents and copyrights. Smaller businesses may be easier to value.
If possible, spouses can also try to reach an agreement on establishing the value of the business and how it should be divided. A prenuptial or postnuptial agreement may also cover how the business is divided and valuation procedures.
It may be necessary to hire a valuation expert if the business is larger or at least medium-sized. Forensic accountants, certified business appraisers and accredited senior appraisers usually perform these valuations.
An attorney can help provide options and protect a spouse’s rights. They can also help negotiate and draft settlement agreements.
