Business Ownership in Divorce Proceedings
Divorce matters for high-net worth individuals entail complicated issues. Many of these are financial in nature and can include luxury homes, vacations properties, investment accounts, and business ownership, to name just a few. In this article we discuss the aspects of business ownership in divorce proceedings and the important decisions that face every business owner.
Businesses owned by either or both spouses are subject to property division during divorce proceedings. In some instances there is a valid prenuptial or post-nuptial agreement that addresses what happens to the business in the event of divorce. Nevada is a community property state. So if there is no such agreement, the business is subject to property division in the divorce proceedings like any other marital asset.
What is the Business Worth?
In order to resolve property division, one of the most important factors is assessing what the business is worth. The amount requires the work of business valuators. Business valuators are licensed professionals who consider the details of a business and form an opinion on its value.
Each business has unique assets and debts. So no two businesses, and therefore their values, are identical, even within the same industry. In some cases, the divorce attorneys representing each party agree on the choice of a business valuator. In other instances, each party retains their own valuator and the findings of each are then compared for similarities and differences. Each spouse’s divorce attorney then negotiates, or litigates, to determine a final value.
The Business Valuation Process
The valuation process includes an analysis of the company’s financials as well as numerous other factors. The business valuator considers whether the business has hard assets such as real estate or equipment, and/or intangible assets such as licensing agreements or goodwill. The valuator also examines financial documents including bank statements, inventory reports, tax returns, profit and loss statements, accounts receivable and payable reports.
Real property owned by the business can be a significant asset. If necessary, the business valuator may require the assistance of a certified real estate appraiser that specializes in commercial real estate. The same can be true for commercial equipment. Depending on the type, age, and amount of business equipment, a separate expert’s opinion as to the value of the equipment may be required.
Some businesses rely heavily on the value of intangible assets. Tech and celebrity related businesses often have a portion of their value based on these types of assets. Intangible assets can include the value of a celebrity name, intellectual property rights, exclusive or non-exclusive licensing agreements, patents and trademarks.
Professional practice businesses often have the intangible asset of “goodwill”. This means that there is a business value as a going concern and its reputation in the community which it serves. Often the goodwill is related to the holder of a special license. One or both spouses may have a medical, law, architectural, contractor or other specialty license. The license holder’s relationship to the business is a factor which complicates the property division aspects in a divorce. These intangible assets can have a wide range of value due to their abstract nature. So experienced divorce attorneys often have a list of business valuators who are well-versed in determining the value of intangibles.
Who Will Work at the Business During the Divorce?
If only one spouse works at the business, the easy answer is that the arrangement remains the same. In other instances both spouses are active in the daily operations. This complicates the matter as there is bound to be some conflict between the personal issue of divorce and the professional aspect of running a business. In the best case scenario both spouses can continue to work at the business. But this can cause unnecessary conflicts. Therefore, experienced divorce attorneys familiar with businesses and divorce are the best option to negotiate an agreement which defines the roles of each spouse until the divorce is finalized.
Who Owns the Business After the Divorce?
Business ownership can have many forms. In addition to one or both spouses, the business may have ownership interest from employees, outside investors, and/or family members. Any form of additional ownership interest adds a level of complexity and the ownership factors may affect the resolution method. Our divorce attorneys have published a comprehensive guide for business owners which goes into more detail. However, for the purposes of this article, we’ll assume that there are no other ownership interests.
Just as every divorce case is unique, so are the manners of resolution. In general some of the most common ways are:
- One spouse buys out the other
- The business is sold and the profits are divided
- Both ex-spouses continue to own the business
The most straight-forward method is for one spouse to buy out the other. This may entail trade-offs with other marital assets. For example, one spouse’s share of the equity in the marital home may be an offset. The same goes for any other marital assets subject to division in the divorce proceedings.
Another option is selling the business to a third-party and dividing the proceeds as part of a global settlement agreement. This is not typical especially in businesses where one or both of the spouses are founders. Typically, there is a strong emotional attachment to the business and selling out to a third-party is not the preferred solution.
The last option is that both ex-spouses continue to own the business after the divorce. Obviously the divorce happened for a reason and, while this option is possible, it is the most infrequent method of resolution.
Retain the Legal Counsel You Deserve
Business ownership, in any form, is a complex matter in divorce proceedings. Protect your rights with a team of divorce attorneys experienced in such matters. Jennifer V. Abrams and Vincent Mayo have two decades in guiding business owners through the myriad of options in order to achieve the best resolution. They can put your mind at ease if you are a business owner or the spouse of one and are considering divorce. They also work with clients that are considering changing divorce attorneys in active cases. Both attorneys offer phone consultations as a courtesy at no charge. Call our office at 702-222-4021 for answers to your important questions.
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