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Debt Division

Dividing a Business After Divorce

Divorces are hard enough but when a business is at stake, they become a whole new world of complicated.   This article aims to provide you with a brief overview of the topic of businesses in a divorce.

Type of Business

Businesses can generally be classified as service-oriented, product-oriented, or some combination of the two.

Product-Oriented Business

A product-oriented business makes most of its money selling goods. The value of one of these businesses frequently comes from the inventory of the business. Therefore, this can be the things in the shop, the cars in the lot, or the homes in the development.  Finally, the value of a product-oriented business at any given time will go up and down with seasonal trends, and changes in demand, or excess product, or any number of other factors.

Service-Oriented Business

Service-oriented businesses make most of their money by providing some kind of service. This includes businesses like a doctor’s office, a lawyer’s practice, a salon, etc. These businesses largely rely upon their reputation, goodwill, and the quality of services provided. Figuring out the value of the business is exceptionally difficult.  Also, the value may be the person getting divorced and the divorce itself may drive down the value!

Nature of Ownership

What it means to own a business varies widely. Maybe the business is a sole proprietorship where one spouse owns the entire thing. Or possibly it’s a joint venture where one spouse shares ownership with another individual. It could also be a family business.  Agreements between the owners can limit the amount you can recover by sale, or how your interest is sold or divided. 

Valuation of a Business

Figuring out the value of someone’s interest in a business can be a very tough task. Often, we’ll see the parties offer self-serving estimates of the value of a business interest–the owning spouse will often undervalue, and the non-owning spouse will tend to overvalue. Lawyers aren’t qualified to testify in court about business valuation.  It’s always better to hire an expert qualified in business valuation to help the parties and the judge figure out the true value. The expert will look into the business; evaluate its income streams, inventory, the book of business, goodwill, fixed costs, and variable costs and give the parties a report. Your lawyer will use the expert report for negotiation, mediation, settlement, or litigation. Having an expert’s report can be absolutely critical in resolving disputes with your spouse.

Need Help with Your Business?

Businesses always make divorce more complicated and expensive.  Experts are very common in these cases.  If you find a good expert, who provides a fair valuation, they’re worth their weight in gold. Fair valuation is crucial in resolving disputes in divorce and experts can help. If you have an ownership interest in a business, and you believe you may be on the verge of getting a divorce, get in touch with one of our attorneys today. Modern Family Law is dedicated to providing top-notch family law legal services, and we offer free consultations with our team of skilled attorneys. So if you have any questions about businesses in your divorce or any other questions related to family law, call us today for a free consultation.

Posted January 23, 2017
by: MFL Team

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