Even though you may believe your company is solely yours, the divorce court’s interpretation of the situation may be different.
Businesses are frequently considered joint marital property and are divided as part of the property settlement.
How is a Business Divorced in a Divorce?
What transpires for a business following a divorce depends on your state of residence, its marital property laws, and the company’s value.
Getting legal guidance as soon as possible is critical if you want to protect your investment in your company through a divorce. Arnold, Wadsworth & Coggins, or AWC, PLLC, can help.
In a Divorce, How Are Businesses Valued?
Business valuation is significantly more complicated than it first appears. A business’s value must be determined by taking into account:
- Tangible property (assets)
- Intangible property
- Assets
- Liabilities
A skilled appraiser’s thorough inventory of the company’s tangible assets is typically the first step in the business valuation process. This includes all machinery used in manufacturing, stock-keeping supplies, and even office supplies. This category also includes buildings that you are the sole owner of. The sum of money in a company’s bank accounts is also essential.
Business assets include both tangible property and liabilities. These liabilities play a significant role in the calculation of value. Some typical liabilities include rent on a building, equipment lease, credit lines, or regular monthly service payments.
Although they are more challenging to evaluate, intangible assets are crucial to a company’s bottom line and long-term performance. Goodwill is one of these intangible assets; it refers to how clients, potential clients, and others feel about the company. Customer satisfaction and community involvement are essential components of goodwill. It is significant to note that one partner frequently serves as “the face” of the company in the neighborhood, directly affecting the reputation and success of the company.
Finally, the team charged with evaluating the business must determine the company’s profit so that you can anticipate a thorough examination of your business’s financial records.
How Is the Division of Enterprises Handled During a Divorce?
It’s important to realize that just because you run the business doesn’t mean you’ll collect 100% of the profits. Because state divorce laws vary, where you live will impact how the court shares your business.
In some states that practice equitable distribution, the court will consider each spouse’s contributions to owning, developing, and operating the business and their roles in maintaining the home and family. The court will frequently give the business to the spouse who operated it while giving the other spouse other marital assets to make up for the business’s value.
Other states where the division of property gained during the marriage is 50-50 are community property states. A business founded during the marriage will typically be regarded as community property by the court.
Not all businesses started before a marriage will be treated as separate property in the case of a divorce. It relies on various factors, such as the compensation received by the spouse who owns the business and whether both partners contributed to it while they were still married.
What Criteria Do Courts Use to Divide up Businesses?
Several factors may be taken into account by the court after an appraiser has determined the value of a business, depending on the state:
- If the company was started before marriage, how much of it does each husband own?
- How much did each spouse contribute to operating the business?
- What is the value that each spouse personally offers to the company, such as their backgrounds in the workplace and their connections with clients?
- Did one spouse take out a loan from the family budget to purchase a product for the business?
- Did or can one partner oust the other?
- How do the partners split up the remaining assets and debt?
- What is the likelihood that each individual might earn a comparable living outside the organization?
Speak to a lawyer for the answers to these questions.
Damian Allen
Damian Allen started work at On The Map as a freelance writer before becoming the content editor of the production division. His experience as a writer allows him to manage the writers and oversee the work they produce. His familiarity and adaptability with a diverse range of topics give him the insight needed to meticulously edit the work produced by On The Map’s diverse range of writers.
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