Divorce is not an easy topic to discuss, even for couples that know they are headed for an end to their marriage. If the couple owns a business or has interest in a business, the divorce can become quite complicated. These are very complex assets to divide, so how important are business valuations when it comes to divorce?
The value of a business or business interest will be included in the division of assets during a divorce, no matter what either spouse wants. If the divorcing couple somehow comes to an agreement on how assets will be divided, then the business might be free of a 50/50 split.
When putting a value on a business for the sole purpose of divorce, the business needs to be looked at as a whole, and not just one individual. Even though you will be trying to figure out how much one person is worth to the business, you still need to look at the business as a whole.
A business that has had a consistent history of earnings will likely be valued as one that will be able to maintain those earnings. A price will likely be put on these earnings, such as what it would cost to purchase the earnings stream.
Certain aspects of the business need to be looked at when putting a value on it for divorce. Those aspects include the following:
-- Are both spouses involved in the business?
-- Is the business owner a sole trader, a partner or a shareholder?
-- Does one or both parties own a percentage or all of the business?
-- Does the business own property?
-- Is the business simply an income-generating entity?
It is possible that the divorce court hearing your complex property division case might create an order that requires the sale of the business or for it to be restructured in order to meet the settlement.
Getting divorced is not as easy as some might think, especially when there are complex assets like a family-owned business involved. Consult a lawyer prior to signing any divorce agreement.
Source: Solicitors Journal, "The importance of business valuations on divorce," March 14, 2017