“I have a business that I have built up with my business partner while my spouse worked full time for a company. What should I do to keep the business?”
A business developed during the course of a marriage is considered a marital asset. Therefore, both spouses are entitled to an interest even if only one spouse is involved in the business. Depending on state law, the way the business is divided varies; but regardless, the value of the business will be added to the total marital assets and liabilities to be divided up.
Establishing the value of a business is a complex procedure that is best left to a valuation expert. Usually fair market value or fair value is the standard used in divorce cases. There are many variables that increase the complexity of private business value in a divorce. Some of these include:
- The separation of business value from reasonable salary;
- The investment of marital assets into the business;
- The existence of a buy-sell agreement with a defined purchase value;
- The impact of less than a 100% ownership in the business;
- Recent changes in income and expense levels in the business;
- The need to incorporate cost required to drive future growth and/or maintain the current returns from the business; and
- The classification of risk and the resulting “reasonable return”.
Additionally, the knowledge gap between the involved and the uninvolved spouse can create tremendous anxiety regarding the true value of the business. The best approach is to hire a valuation expert who can help to establish a reasonable and fair value and assist you in your decision process regarding future ownership of business interests.
Brandi Ruffalo is a financial divorce advisor with Valuation & Forensic Partners, LLC in Chicago and Schaumburg in Illinois. She specializes in basic lifestyle and financial analyses to the valuation of private businesses or stock option.