DIVORCE 911 collaborated with Wendy Hayes of Mitchell Hayes for this blog.
We also have a video covering this topic.
Family businesses may be another asset in a marriage. You have to consider all of the sweat equity as well as whatever monetary equity that went into building that business. You also have to consider that the purpose of putting all of that sweat equity and capital into a business is to expect a future stream of revenue. Another consideration is to possibly sell that business down the road so that you can finance your retirement or other goals.
First, establish a fair market value for the business. This allows us to consider the entire financial portfolio of a divorcing couple so that we can make sure that the spouse that will not be a part of that business is going to get their fair share. However, we also don’t want to cripple the future business owner. It doesn’t help either party if we’re bankrupting the business to be to able to pay off the other party. There are creative ways that we can create and design that settlement so that both parties can win.
Understand that the business is only one item on the marital balance sheet that makes up the couple’s entire net worth. It is also important to understand the cash flow the business provides and how adding debt to the business would impact cash flow and operations of the business. In dividing the assets, allowing the business owner to keep all or more of the business means that the other spouse will receive other assets to compensate or offset the value of the business. If a lump sum payout at the time of the divorce is not in the couple’s best interest, a promissory note could be used to pay the spouse over time. There are many options. Remember that no one wins if you prevent the business from providing the future earnings that are in dispute. Work with a team of professionals who can craft an agreement that will allow you both to realize the financial benefits of the business as well as your other assets.