Discovering the true value of your business in a divorce

On Behalf of | Feb 26, 2020 | Divorce |

If you and your spouse are partners in a family business, the fate of that business will be a focal point in your divorce.

Determining the value will be essential as you approach the property division phase of the proceedings.

Determining value

When married business partners decide to divorce, ownership of the family business becomes a primary consideration, and it often requires hiring a professional appraiser or forensic accountant to perform a business valuation. This person will go through your books and records to determine the value of equipment such as computers; value any real property owned, such as the business’s office building; determine the current annual income and the estimated income over the next several years; and examine existing company debts.

Deciding how to proceed

There are three basic options to pursue: Sell the business outright and share the profits with your spouse, perform a buyout with your spouse, or continue owning and operating the business if you feel that you can work together after your divorce. If you choose the latter option, you will not need to go through the expense of hiring a professional to establish a value, and the two of you will keep your respective shares of the business.

Taking a few precautions

If your soon-to-be-ex decides to sell his or her share of the business to you and offers a promissory note, make sure that you and your spouse can complete the transfer of ownership within a year. Otherwise, you may hear from the Internal Revenue Service concerning taxes. Ensure that the promissory note contains collateral that will default to you if payment is not made within the allotted timeframe. Also, if you are not as involved in the financial side of the business as your spouse, make sure that the appraiser you hire includes a search for possible bookkeeping irregularities while working on a business valuation.